Wholesale Prices Hold Steady in September, Inflation Stays Sticky
Oct 17, 2024
Key Points:
- The Producer Price Index (PPI) remained flat in September, missing expectations for a 0.1% increase.
- Year-over-year PPI growth slowed to 1.8%, signaling progress in cooling inflation.
- Core PPI (excluding food and energy) rose 0.2%, meeting forecasts, and was up 2.8% from a year ago.
- Goods prices fell 0.2%, balancing out a 0.2% rise in service costs.
The latest numbers on wholesale inflation point to continued progress in cooling prices, though certain sectors are still showing resilience. The Producer Price Index (PPI)—which tracks the prices producers receive for goods and services—was flat in September, according to Friday’s report from the U.S. Labor Department. Economists polled by Dow Jones had anticipated a 0.1% increase following August’s modest 0.2% rise.
On an annual basis, PPI grew by 1.8%, down from prior highs, suggesting that inflationary pressures are easing. However, the cooling trend isn’t evenly spread across all areas. Core PPI, which strips out the more volatile food and energy components, rose 0.2% for the month and 2.8% over the past year, reflecting pockets of stickiness in the broader economy.
Goods vs. Services: A Tale of Two Sectors
The mixed PPI report reveals the tension between declining goods prices and rising service costs. Prices for final demand goods slipped 0.2%, largely driven by significant declines in energy prices, while service costs increased by the same margin.
Gasoline prices fell 5.6%, while diesel fuel saw a dramatic 17.6% drop.
On the services side, deposit service costs surged 3%, providing upward pressure on the index.
Meanwhile, prices for professional and commercial equipment wholesaling tumbled 6.3%, adding complexity to the inflation picture.
“The divergence between goods and services reflects both progress and persistent challenges,” said Oren Klachkin, a markets economist at Nationwide Financial. “While overall inflation is easing, the path to the Fed’s 2% target won’t be smooth.”
Market Reaction: Optimism Tempered with Caution
Wall Street took the PPI data in stride. Stock futures ticked higher, and later in the session, the Dow Jones Industrial Average climbed more than 300 points, boosted by robust bank earnings. Treasury yields rose slightly on long-term securities, reflecting ongoing concerns about the economy’s trajectory.
The PPI release followed Thursday’s Consumer Price Index (CPI) report, which showed a 0.2% rise for September and 2.4% year-over-year growth. While PPI tracks wholesale prices, CPI captures what consumers ultimately pay, providing a broader view of inflation’s impact.
Although neither metric is the Federal Reserve’s preferred inflation gauge, both reports influence the Personal Consumption Expenditures (PCE) Price Index, which the Fed relies on for policy decisions. Economists now expect the PCE deflator, due later this month, to reflect a 0.2% rise, keeping the Fed on alert.
Fed Officials Signal Confidence Amid Mixed Data
Fed policymakers have expressed measured optimism that inflation is trending in the right direction, even as sticky costs in areas like housing, food, and vehicles present hurdles. Minutes from the Fed’s September meeting revealed division among officials over the pace of future rate cuts.
Markets are currently pricing in two more rate cuts—each by a quarter-point—before year’s end. However, consumer expectations may complicate that outlook.
The University of Michigan’s Survey of Consumers, released Friday, showed a dip in sentiment for October, with near-term inflation expectations rising to 2.9%—the highest level since June. This uptick suggests that consumers remain wary, even as headline inflation shows signs of cooling.
Looking Ahead: A Measured Path to Stability
While the Fed has made strides toward taming inflation, the September PPI report highlights how uneven the progress can be. Falling energy prices are a welcome relief, but persistent service-sector inflation will likely keep policymakers on their toes.
The Fed’s task isn’t just to manage inflation today—it’s to set the stage for sustained stability. As Klachkin put it, “The latest data supports the disinflation narrative, but the road to 2% inflation is far from linear.”
For now, the message is clear: wholesale inflation is easing, but it will take time—and patience—to fully align with the Fed’s long-term goals.
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