Producer prices were flat in September, slightly better than anticipated, according to the Bureau of Labor Statistics’ latest report on the Producer Price Index (PPI).
- The index for final demand remained unchanged month-over-month, a relief after a 0.2% increase in August, marking the fourth time this year that prices have stayed stable.
- On an annual basis, producer prices rose 1.8% compared to September 2023, a slight decrease from August’s 1.9%. This marks the lowest year-over-year increase since February, though still slightly higher than economists’ forecast of a 1.6% rise.
The Core: While the overall numbers were steady, core prices—excluding volatile categories like food, energy, and trade—rose 0.2% from August, pushing the year-over-year increase in core inflation to 2.8%. That’s up from 2.4% the previous month and represents the highest core inflation rate since June, signaling persistent inflationary pressure.
Offset: The index for final demand services increased by 0.2%, which offset a 0.2% drop in final demand goods.
Sell-Off Continues: Despite the better-than-expected PPI data, bond markets showed little relief. Pre-market yields on the 10-year Treasury note climbed above 4.10%, indicating continued concern over inflation, especially following hotter-than-expected consumer inflation data earlier in the month.
Bottom Line: Federal Reserve officials are carefully weighing the latest inflation data from both the Consumer Price Index (CPI) and Producer Price Index (PPI) as they consider their next move on interest rates. While the CPI came in hotter than expected, the slightly better-than-anticipated PPI report could carry more weight, given that producer prices often serve as a leading indicator for consumer prices. The jump in jobless claims to a 14-month high, reported yesterday, adds another layer to the Fed’s considerations, as signs of labor market weakness may signal easing inflation pressures. This mix of data could keep the Fed on track for a potential 25 basis point rate cut in November, as they balance inflation risks with a slowing economy.
