September PPI Comes in Hot at 6.3%, Well Above the 5.3% Estimate as Energy Costs Surge
Wholesale inflation is running hot again
Wholesale inflation came in far hotter than expected in September. The producer price index rose 6.3 percent from a year earlier, above the 5.3 percent estimate, according to the Bureau of Labor Statistics.
The monthly move was just as sharp. PPI jumped 1.3 percent from August, more than double the 0.6 percent increase economists expected, and the fastest monthly gain since March 2022. The annual reading is the highest since December 2022.
Energy did most of the damage
Energy goods prices surged 10.8 percent in September, and gasoline alone climbed 20.3 percent, accounting for about half of the increase in goods prices. Goods prices overall rose 2.6 percent, while services rose 0.8 percent.
The pressure was not confined to fuel. Core PPI, which strips out food and energy, rose 5.0 percent from a year earlier, above the 4.4 percent estimate, and the measure excluding food, energy and trade services also rose 5.0 percent.
The backdrop is the war with Iran, which has squeezed global oil supply and pushed fuel costs through supply chains. September CPI, released a day earlier, rose 3.7 percent, and inflation has now sat above the Fed's 2 percent target for five and a half years.
The Fed meets with inflation going the wrong way
The print lands less than two weeks before the Federal Reserve's October 27 to 28 meeting, and it gives officials little room to ease. A pipeline of wholesale costs rising at 6.3 percent is the kind of number that argues for tighter policy, not looser.
With CPI at 3.7 percent and PPI at 6.3 percent, both major inflation gauges are now accelerating at the same time. Retail sales growth slowed to 0.8 percent in September from 1.3 percent in August, a sign the consumer is starting to feel the squeeze even as prices accelerate.
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Options market and stocks to watch
Hotter wholesale inflation is a rates story first. SPY and QQQ are the cleanest expressions of the rate path trade into the October meeting, and implied volatility tends to build into hot inflation prints and Fed decisions.
TLT is where traders express a view on whether the bond market believes the Fed will have to hike again. On the other side of the energy shock, XOM and the big energy names keep benefiting from the same fuel costs driving the PPI number.
Watch energy flow versus rate sensitive growth flow into the meeting, and follow the reaction on the Unusual Whales news feed.
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