Inflation in the United States: producer prices explode by 6.3%, the Fed no longer has an excuse

Second slap in the face in 24 hours. After consumer inflation on Wednesday, it is the turn of producer prices to slip. The PPI index published this Thursday by the Bureau of Labor Statistics jumped 1.3% in September and 6.3% year-on-year, two records since 2022.

Economists expected 0.5% and 5.3%. The market no longer expects much from the Fed: the October 28 rate hike, still considered improbable a week ago, is becoming the central scenario.

Key Points

Producer prices rose 1.3% over one month, their biggest increase since March 2022.

Over one year, the index reached 6.3%, a peak since December 2022.

Excluding food, energy and commercial margins, the underlying PPI increases by 0.5% and 5% year-on-year.

Goods increased by 2.6% in one month, a record since the creation of the index in 2009.

Producer prices: 2.6% in one month on goods, unprecedented

PPI measures what companies charge for their products, before the consumer checks out. He often announces the CPI two or three months later. And that of September does not promise anything good. According to the BLS, final demand goods rose 2.6% in a single month, the largest increase since the series began in December 2009. Energy explained more than 80% of the movement, with a jump of 10.8%. Wholesale gasoline gained 20.3%.

Upstream, it's worse. Crude oil rose 28.3% over the month and unprocessed energy rose 22.2%. Services follow, at +0.8%, driven by transport and warehousing (+3.4%). The only consolation for the American breakfast is that the price of eggs has fallen by 39.7%.

What is worrying is that the core of the index is also moving. Excluding food, energy and distribution margins, the PPI increased by 0.5% over the month and 5% over the year. In other words, the oil shock is starting to spread to the rest of prices, exactly what Jeff Schmid, of the Kansas City Fed, feared when repeating that inflation “is not just an energy problem”.

The October 28 Fed no longer has an excuse

Already on Wednesday, the CPI at 3.7% had increased the probability of a rate hike on October 28 from around 22% to 37% on the CME's FedWatch, with a peak above 50% during the session. The PPI drives the point home. Kevin Warsh raised rates from 3.75% to 4% in September, and sixteen of the eighteen committee members predicted an additional increase before the end of the year. The calendar has just gotten shorter.

The dollar erased its losses from the morning after the publication, to 102.2 on the DXY index. Bitcoin did not react. It is trading around $80,800, down 2.6% over 24 hours, after a low of $80,444 overnight. The $80,000 zone, which is its 50-day moving average, is now the only thing separating it from a return to September levels.

The next PPI, that of October, will not be published until November 13, well after the Fed's decision. Until then, the PCE of October 27 will be the last word on statistics before that of Kevin Warsh, the next day.