Producer Prices Spike Higher Than Expected in Sign of Heightening Inflation

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U.S. producer prices increased more than expected in September amid strong gains in the costs of services and goods, suggesting inflation could remain uncomfortably high for a while.

The producer price index for final demand rebounded 0.4% last month, the Labor Department said on Wednesday. Data for August was revised lower to show the PPI falling 0.2% instead of dipping 0.1% as previously reported. In the 12 months through September, the PPI increased 8.5% after advancing 8.7% in August. Economists polled by Reuters had forecast the PPI rising 0.2% and climbing 8.4% year-on-year.

The moderation in annual producer inflation is being driven by an easing in supply chain bottlenecks as well as a retreat in commodity prices from the highs seen in the spring. But the pass through to consumer prices has been marginal.

Oil and gasoline prices have likely bottomed following last week’s decision by the Organization of Petroleum Exporting Countries and allies to cut crude production.

Data on Thursday is likely to show consumer prices picking up in September, according to a Reuters survey of economists, sealing the case for the Federal Reserve to raise interest rates by 75 basis points next month for the fourth time this year.

Financial markets have almost priced-in a rate hike of three-quarters of a percentage point at the Fed’s Nov. 1-2 policy meeting, according to CME’s FedWatch Tool.

The Fed has since March raised its policy rate from near zero to the current range of 3.00% to 3.25%.

Excluding the volatile food, energy, and trade services components, producer prices also rose 0.4% in September. The so-called core PPI gained 0.2% in August.

In the 12 months through September, the core PPI rose 5.6% after a similar increase in August.

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