September Producer Inflation Rises as Goods Costs Accelerate

Producer inflation rose in September, driven entirely by higher goods prices, according to the Bureau of Labor Statistics.

The September producer price index—a measure of the wholesale price changes before they reach consumers—rose 0.3 percent following a 0.1 percent decline in August.

This was in line with the market consensus.

Economists monitor monthly producer prices, especially in today’s environment of tariffs, because they can serve as a pipeline indicator of consumer inflation.

Meanwhile, core wholesale inflation, which strips out the volatile energy and food categories, ticked up to 0.1 percent, smaller than expected, after falling 0.1 percent the previous month.

The 12-month headline producer price index inflation was unchanged at 2.7 percent, while core producer inflation slowed to a lower-than-expected 2.6 percent year over year.

Producer inflation—excluding food, energy, and trade—rose 0.1 percent, below market projections of a 0.2 percent increase.

Final demand for goods increased by 0.9 percent—the largest monthly increase since February 2024— accounting for much of September’s increase.

Two-thirds of the category’s increase can be traced to energy prices, which soared 3.5 percent, fueled by a nearly 12 percent spike in gasoline prices.

Crude oil and gasoline prices have eased in recent months, but they accelerated in late summer amid Middle East tensions that raised fears of disruptions to the Strait of Hormuz—a vital oil and gas shipping route.

Supply constraints, as well as refinery maintenance and capacity, also contributed to higher gas prices.

Indexes for meats, residential electric power, motor vehicles, natural gas liquids, and ethanol also contributed to the jump.

Producer services inflation was unchanged. The only notable increase in this category was a 0.8 percent boost to final demand transportation and warehousing services.

Like other economic reports, the release of the September Producer Price Index was delayed due to the government shutdown.

While the figures are trickling in, the October jobs and inflation data have been affected.

Additionally, November numbers will be published in late December.

The next batch of inflation data will be released on Dec. 5 when the Bureau of Economic Analysis publishes the Federal Reserve’s preferred September Personal Consumption Expenditures (PCE) report.

Estimates from the Cleveland Fed Inflation Nowcasting Model suggest the annual PCE inflation rate rose to 2.8 percent.

Core PCE inflation is expected to come in at 2.9 percent.

Scanning Other Data

A plethora of other economic indicators were released on Nov. 25, including retail sales and The Conference Board’s Consumer Confidence Index.

Retail sales rose 0.2 percent in September, falling short of economists’ expectations.

The retail sales control group, which contributes to gross domestic product calculations, fell 0.1 percent.

A deeper dive into retail trade data spotlights the increasingly forming K-shaped trend, according to RBC economists.

Over the past several weeks, more economic observers have pointed to growing signs of a K-shaped economy.

This is when the upper arm indicates that high-income households are doing well, while the lower arm suggests low-income households are stagnating.

For RBC economists, the 0.7 percent increase in spending on food and services and drinking places is evidence that the upper end of the K-shaped economy “is continuing to drive consumer spending.”

“As wealthier households have witnessed a boom in liquid assets and non-labor income becomes increasingly important, we expect services sector spending will remain positive, since this group is less sensitive to tariff price pressures and weaker wage growth,” they wrote in a Nov. 25 note.

The Conference Board’s November Consumer Confidence Index weakened to its lowest level since April.

Consumers reported declining confidence in current and future employment, incomes, and financial situations.

Survey participants’ write-in responses referenced prices, inflation, tariffs, trade, and the government shutdown.

“Mentions of the labor market eased somewhat but still stood out among all other frequent themes not already cited. The overall tone from November write-ins was slightly more negative than in October,” Dana M. Peterson, chief economist at The Conference Board, said in the report.

Its cut-off date was Nov. 18, so much of the board’s data was collected during the impasse.

The latest data suggest the Federal Reserve might have enough ammunition to pull the trigger on a third straight quarter-point interest rate cut, says Jeffrey Roach, chief economist for LPL Financial.

“Despite the lapse in official job data, the weakening complementary metrics such as this one will put pressure on the Fed to cut rates in December and continue cutting in 2026,” Roach said in a note emailed to The Epoch Times.

“Easing monetary policy in a non-recessionary environment is good news for our forecasted capex (capital expenditure) spending throughout the new year.”

Traders are overwhelmingly penciling in a 25-basis-point reduction at next month’s Federal Open Market Committee policy meeting.