Producer Prices Rose 1.3 Percent, More Than Double the Forecast. Core Is Up 5 Percent While Consumer Core Is 2.6.

Producer prices rose 1.3 percent in September, more than double the 0.6 percent economists polled by Dow Jones expected, the Bureau of Labor Statistics reported on October 15. Over twelve months the index is up 6.3 percent, against a 5.5 percent forecast.

Start with fuel, because the BLS release does. Gasoline prices at the producer level jumped 20.3 percent and accounted for half of the rise in final demand goods. Goods overall rose 2.6 percent, the largest monthly increase since the BLS began calculating the series in December 2009. Energy, up 10.8 percent, made up over 80 percent of that goods move.

The part that is not gasoline

Services rose 0.8 percent in September after 0.2 percent in August. The release also points to a 1.4 percent rise in margins for final demand trade services, up from 0.2 percent a month earlier. Margins measure what sellers charge above what they paid. When they widen during a cost surge, at least some businesses are raising prices by more than their own costs rose.

Strip out food, energy and trade services and final demand still rose 0.5 percent on the month and 5.0 percent over twelve months. CNBC, using a broader exclusion that removes only food and energy, reported core producer prices up 0.7 percent for September. Either way, the increase is not confined to the pump.

Why the consumer numbers look calmer

The consumer price index, released a day earlier, rose 0.6 percent in September and 3.7 percent over twelve months. Excluding food and energy, it rose 0.3 percent and 2.6 percent. Core producer prices are up about 5 percent against core consumer prices up 2.6 percent. That gap is the number that matters.

It has two possible readings, and the data released so far cannot separate them. Retailers and manufacturers may be absorbing higher input costs in their own margins, which would squeeze their profits. Or the costs have not yet reached shelf prices, which would mean more consumer inflation to come. The trade margin jump points toward some pass-through already happening. A forecast of what follows is a forecast, not a finding.

There is evidence for the other side. Retail sales ex autos and gas stations rose only 0.25 percent in September, down from about 1.1 percent in August, according to CNBC. Headline retail sales grew 0.8 percent, double the 0.4 percent expected, but the slowdown underneath suggests households are cutting back elsewhere to pay for fuel. Weaker demand limits how much of a cost increase a seller can pass on. Producer prices are also volatile month to month. August final demand rose 0.5 percent, and the 1.3 percent print is the largest since March 2022, when the BLS recorded 1.7 percent.

What the Fed does with it

The Federal Reserve raised rates last month, according to CNBC, and Chairman Kevin Warsh has suggested the test for holding off on a hike is confidence that inflation will return to 2 percent in a timely way. Fed futures tracked by CME FedWatch put the chance of a hike at the October 28 meeting near 34 percent, up from under 18 percent a week earlier. About 90 percent of traders expect at least one hike by the end of the year.

Kathy Bostjancic, chief economist at Nationwide, wrote that she sees real risks of another hike at the October meeting even though recent Fed commentary tempered expectations for back-to-back increases. Alex Pelle, senior U.S. economist at Mizuho Securities, wrote that the data leaves little reason for the Fed to hesitate.

Seven Wall Street estimates gathered by CNBC point to core PCE inflation, the Fed's preferred gauge, rising 0.32 percent in September versus 0.25 percent in August. The range runs from 0.29 percent at Oxford Economics to 0.35 percent at Barclays. That would lift the annual core rate to about 3.1 percent. These are forecasts. The official PCE figure arrives later this month.

Who wins and who loses is already partly visible. Sellers whose margins widened are ahead for now. Households carry the fuel bill today and, if the pipeline pressure moves downstream, a second round of price increases. Borrowers face the other cost, a policy rate that traders expect to rise again.