US Producer Prices Jump 1.3 Percent in September as Retail Sales Beat Forecasts

US producer prices jumped 1.3 percent in September, the Bureau of Labor Statistics said on Thursday, October 15. It was the biggest monthly rise since March 2022, and it left wholesale prices 6.3 percent higher than a year earlier, the largest 12 month increase since December 2022. Economists surveyed by FactSet had expected a monthly rise of 0.5 percent.

Separate figures from the Commerce Department told a matching story on the high street. Retail sales rose 0.8 percent in September after an upwardly revised 1.3 percent jump in August, the Census Bureau said. Economists polled by Reuters had forecast a rise of 0.3 percent. Higher fuel prices accounted for most of the increase in both reports.

Energy did the damage

Prices for final demand goods rose 2.6 percent in September. The index for final demand energy jumped 10.8 percent, and gasoline costs surged 20.3 percent, which drove about half of the increase in goods prices. Diesel, jet fuel, residential electric power and crude petroleum all rose as well. Food prices went up 1.2 percent after falling 0.3 percent in August, with fresh and dry vegetables among the items that cost more. Prices for final demand services advanced 0.8 percent.

Not only energy

Stripping out food and energy, core producer prices still climbed 0.7 percent in the month, more than double the 0.3 percent economists had expected, after a flat revised reading in August. Core prices were up 5.0 percent from a year earlier. A second core measure, which also leaves out trade services, rose 0.5 percent on the month and 5.0 percent on the year. That breadth is why economists treated the report as more than a fuel story. Joseph Brusuelas, chief economist at RSM US, said the producer price jump, together with the retail sales gain, demands consideration of a rate hike.

Shoppers kept spending, carefully

The retail figures were softer once fuel was removed. Core retail sales, which exclude automobiles, gasoline, building materials and food services, edged up 0.1 percent in September after surging 1.2 percent in August, short of the 0.3 percent gain economists had forecast. Retail sales are mostly goods and are not adjusted for inflation, and gasoline prices rose 7.1 percent in September on Energy Information Administration data, so part of the headline gain was price, not volume.

Inflation adjusted wages fell again in September. The Federal Reserve's Beige Book, published on Wednesday, October 14, said most districts reported little or no change in overall consumer spending between late August and early October, and that lower income customers were being more cautious in districts such as Dallas. Bank of America Institute reported more use of buy now, pay later this week, with nearly one in every five households using it carrying a repayment of over 500 dollars.

What the Fed does next

Thursday's reports landed a day after consumer price data showed headline inflation at 3.7 percent in September. Economists expect consumer spending grew at about a 3.4 percent annualized rate in the third quarter, down from 3.8 percent in the April to June quarter, with overall growth near 3.0 percent. Federal Reserve policymakers meet on October 27 and 28, and the two September reports give them a hotter inflation picture and a still spending consumer to weigh at the same time.