Inflation, as measured by producer wholesale prices, came in a bit hotter than expected at 8.5% for the year ending in September, according to a report Wednesday from the Bureau of Labor Statistics.
That year-over-year inflation rate was down from 8.7% the month before, but still a bit higher than forecasters expected. On a month-to-month basis, the producer price index grew by 0.4%, double forecast expectations.
Looking at the past several months, it appears as though inflation as measured by the producer price index peaked and is on its way down. Annual wholesale inflation reached its zenith in April, clocking in at 11.5%. It stayed above 10% throughout the summer but has now been in retreat for the past three months. Trends in producer prices eventually trickle down to households.
“Producer prices made steady progress at the start of Q3, but September’s reading is a reminder that price pressures remain elevated and volatile, particularly for food and gas, given the ongoing war in Ukraine and ongoing supply chain disruptions,” economists with Oxford Economics said.
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Wednesday’s report comes just a day ahead of the even more closely watched consumer price index report. The CPI is seen by many to be the key barometer of headline inflation in the United States and September’s reading will be the last one before the midterm elections, upping the stakes for President Joe Biden and Democrats.
The consensus forecast is that headline inflation slowed two-tenths of a percentage point to 8.1% in September. Economists also expect, though, that “core inflation” (that is, inflation with the volatile categories of food and energy stripped out) accelerated two-tenths of a percentage point to 6.5%.
August’s inflation report featured prices clocking in higher than forecasters had expected, sending the markets into a spiral as fears grew that the Federal Reserve would have to keep aggressively hiking interest rates in order to drive down inflation.
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The Fed has had to raise rates very quickly in an effort to combat inflation. Its interest rate target has risen by 2.25% in the past four months, the most forceful rate hikes since the Great Inflation of the late 1970s and early 1980s.
“In a world of instability and surprises, it’s hard to know exactly how much higher interest rates will have to be, causing what Chairman Powell has warned will include pain along the way. It’s already led to a bear market in stocks and a deep freeze for the housing market,” said Mark Hamrick, a senior economic analyst at Bankrate.
