Gasoline, food drive US producer prices higher

By Lucia Mutikani

WASHINGTON (Reuters) -U.S. producer prices increased more than expected in September amid higher costs for energy products and food, but underlying inflation pressures at the factory gate continued to moderate.

The mixed report from the Labor Department on Wednesday was published ahead of the release on Thursday of September’s consumer price data, which is being closely watched for clues on whether the Federal Reserve will raise or keep interest rates unchanged against the backdrop of rising U.S. Treasury yields and conflict in the Middle East.

“The Fed has not finished the job and stamped inflation out completely yet, and if anything, policymakers have their work cut out for them as much of the inflation we see in producer prices is coming from food and energy prices that monetary policy has less effect on,” said Christopher Rupkey, chief economist at FWDBONDS in New York.

The producer price index for final demand rose 0.5% last month after accelerating by an unrevised 0.7% in August.

Economists polled by Reuters had expected the PPI to gain 0.3%. In the 12 months through September, the PPI increased 2.2% after advancing 2.0% in August.

The narrower measure of PPI, which strips out food, energy and trade services components, gained 0.2% after rising by the same margin in August. In the 12 months through September, the so-called core PPI increased 2.8% after climbing 2.9% in August.

Wholesale goods prices gained 0.9% last month, with a 3.3% rise in the cost of energy products accounting for nearly three-quarters of the increase. Goods prices jumped 2.0% in August. Gasoline prices rose 5.4%, making up more than 40% of the increase in the cost of goods last month. There also increases in the prices of jet fuel, electric power and diesel fuel.

Food prices rebounded 0.9%, with processed young chickens and meats costing more. But prices for fresh and dry vegetables declined 13.9%. Wood pulp and utility natural gas prices also declined.

Excluding the volatile food and energy components, core goods prices edged up 0.1% for the second straight month. This mostly reflects the normalization of supply chains, whose disruption fueled goods inflation in the aftermath of the COVID-19 pandemic.

The cost of services increased 0.3%, boosted by a 13.9% surge in deposit services, after rising 0.2% in August. Prices for services less trade, transportation, and warehousing increased 0.3%. Trade services, which measure changes in margins received by wholesalers and retailers, climbed 0.5%. But the cost of transportation and warehousing services fell 0.4%.

The economy continues to forge ahead despite hefty rate hikes, creating 336,000 jobs in September, the most in eight months and almost double the amount economists had expected in a Reuters survey. Financial markets overwhelmingly anticipate the U.S. central bank will leave rates unchanged at its Oct. 31-Nov. 1 policy meeting, according to CME Group’s FedWatch tool

Top ranking Fed officials indicated on Monday that soaring yields on long-term U.S. government bonds could steer the central bank from further rate hikes. Since March 2022, the Fed has raised its benchmark overnight interest rate by 525 basis points to the current 5.25%-5.50% range.

In September, there were increases in the costs of hotel and motel accommodation, healthcare. But prices for airline tickets fell 2.1%. The components go into the calculation of the personal consumption expenditures (PCE) price indexes, the inflation measures tracked by the Fed for its 2% target.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)