Inflationary pressures on U.S. producers intensified in September, adding fuel to concerns about the broader economy. The Producer Price Index (PPI), a key gauge of price changes for goods and services sold by domestic producers, saw a sharper rise than anticipated, mirroring the trend observed in consumer inflation data released earlier.
The headline PPI for final demand jumped 1.8% year-over-year in September, slightly exceeding economist expectations of 1.6%. While this represents a slight slowdown from the revised 1.9% increase in August, it still points to ongoing price pressures. On a monthly basis, the PPI remained flat, falling short of the predicted 0.1% increase.
Food costs played a significant role in the September price surge, climbing 1% month-over-month, marking the largest increase since February. A 3% rise in the index for deposit services also contributed significantly to the overall increase in prices for final demand services. Other industries that saw notable price increases include machinery and vehicle wholesaling, furniture retailing, software publishing, apparel wholesaling, and airline passenger services.
Core producer prices, which exclude the volatile components of energy and food, also exhibited significant growth. They surged 2.8% year-over-year in September, surpassing the market expectation of 2.7% and climbing from August’s 2.4% increase. On a month-over-month basis, core PPI rose 0.2%, aligning with forecasts.
The release of the PPI report has triggered a shift in market sentiment, particularly regarding expectations for the Federal Reserve’s upcoming interest rate decision in November. Prior to the report, traders had assigned a nearly 85% chance of a 25-basis-point interest rate cut. However, the elevated inflation figures have led to a slight downward revision of those expectations.
The U.S. dollar index (DXY) has edged higher following the release of the PPI data, as Treasury yields climbed. The 30-year yield, in particular, saw a 5-basis-point increase, reaching 4.41%, its highest level since late July. This upward trend in yields has dampened investor enthusiasm for bonds, leading to a decline in the iShares 20+ Year Treasury Bond ETF (TLT). Futures on the S&P 500 remained unchanged, while contracts on the tech-heavy Nasdaq 100 eased slightly.
