Producer Prices Surge Beyond Expectations
The producer price index climbed 1.3% in September, the largest monthly increase since March 2022 and more than double the 0.6% that economists had forecast. On an annual basis, producer prices rose 6.3%, the biggest jump since December 2022. Gasoline prices, which surged 20%, drove much of the gain. However, even after stripping out food, energy, and trade services, prices still rose 0.5%, suggesting that inflationary pressures are broader than just energy costs.[S1]
The hot PPI reading has complicated the Federal Reserve's inflation fight, with economists warning that the central bank's work is not done. The data came just days after the consumer price index release and ahead of the Fed's preferred inflation gauge, the personal consumption expenditures index, due later this month. Wall Street estimates gathered by CNBC now project core PCE inflation to rise 0.32% in September, up from 0.25% in August, which would push the annual core rate to 3.1% from 3.01%.[S1][S2]
Fed Rate Hike Odds Climb
Trading in fed funds futures on Thursday implied just a 29% chance that policymakers would lift rates at this month's meeting, while pricing in a 91% likelihood of at least one increase before year-end. A number of Fed officials have said there is no need to rush, though they acknowledge further tightening is warranted. Nationwide chief economist Kathy Bostjancic cautioned that another hike in two weeks remains a genuine possibility, even as recent remarks from Fed speakers cooled bets on consecutive moves.[S1]
Mizuho Securities senior U.S. economist Alex Pelle described the situation as far from benign, citing inflation that is both high and building, and said the data alone gives the Fed scant reason to pause its tightening path. Fed Chairman Kevin Warsh has pointed to one test for holding off: confidence that inflation will promptly return to the central bank's 2% goal. Headline and core PCE inflation have exceeded that target since 2021, drifting upward after tariffs took effect in April 2025 and accelerating once the Iran war began.[S1]
Stagflation Fears and the Fed's Preferred Gauge
The PPI surge has also raised concerns about stagflation. The chief economist at Apollo described the current environment as the definition of stagflation, according to a headline from Stocktwits. The Fed prefers the PCE index over the CPI because it believes the PCE more closely resembles how Americans actually spend their money and adjusts its weightings when consumers change their spending patterns. The upcoming PCE report will be closely watched for further signs of broadening inflation.[S1][S3]
