Wholesale inflation accelerates more than expected in September

Inflation at the wholesale level surged more than expected in September, underscoring the challenge of taming price pressures within the economy. 

The Labor Department said Wednesday that its producer price index (PPI), which measures inflation at the wholesale level before it reaches consumers, climbed 0.5% in September from the previous month. On an annual basis, prices are up 2.2%, the largest increase since April.

Those figures are both higher than the 1.6% headline increase and 0.3% monthly figure forecast by Refinitiv economists.

"Today’s PPI suggests we haven’t seen the end of sticky inflation — and high interest rates," said Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office. "Either way, investors will need to remain patient. Lowering inflation significantly from last year’s highs was one challenge, getting it down to the Fed’s 2% target level is another."

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In another sign that suggests high inflation has been slow to dissipate, core prices — which exclude the more volatile measurements of food and energy — rose 0.3% for the month. That is higher than both the 0.2% estimate and the reading recorded last month. 

The figure was up 2.7% on a 12-month basis.

The data comes one day before the Labor Department releases its more closely watched consumer price index, which measures the prices paid directly by consumers. The gauge is expected to show that inflation cooled ever so slightly last month as high prices continue to squeeze consumers.

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Both releases are considered to be important measurements of inflation, with the PPI believed to be a leading indicator of inflationary pressures as costs work their way down to consumers. The different gauges point to inflation that is still running above the Federal Reserve's preferred 2% target.

The back-to-back inflation reports will have major implications for the Fed, which is tightening rates at the fastest pace in decades as it tries to cool the economy. The central bank has approved 11 rate hikes over the course of 16 months, lifting the federal funds rate to the highest level since 2001. 

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Policymakers skipped a rate hike at their most recent meeting in September, but left the door open to an additional increase this year. However, in recent days, many Fed officials have suggested they could be done raising rates thanks to the recent run-up in long-term Treasury yields, which influence financing costs for households and businesses. 

The Dow Jones Industrial Average opened higher on Wednesday morning, despite the surprisingly hot PPI report.