Rising PPI shows Fed’s work not done, economists say

Wall Street estimates for the Federal Reserve’s preferred inflation gauge now expect an acceleration from the level that prompted the central bank to raise rates last month.

The estimates come after a stronger-than-expected producer price index came in at 1.3% on Thursday, the biggest monthly gain since March 2022 and more than double the consensus of 0.6%.

That brought the year-over-year increase to 6.3%, the biggest rise since December 2022. The increase was punctuated by a 20% rise in gasoline prices. But if we exclude food, energy and commercial services, prices still increased by a good 0.5%, indicating that inflation is not limited to energy.

Seven Wall Street estimates collected by CNBC show that core personal consumption expenditure inflation for September, to be released later this month, is expected to rise to 0.32%, up from 0.25% in August. Wall Street economists use the Consumer Price Index, released Wednesday, and the PPI to estimate PCE.

“We see real risks that the Fed will raise rates again in two weeks, although recent Fed speeches have tempered expectations of back-to-back increases,” wrote Kathy Bostjancic, chief economist at Nationwide.

Several Fed officials argued that the Fed did not need to rush to raise rates, although they suggested that further rate hikes were necessary. As a result, Fed futures showed on Thursday only a 29% chance of a hike at the Fed meeting at the end of this month, but a 91% chance of at least one hike by December.

A 0.32% increase in PCE would bring the year-over-year core inflation rate to 3.1%, up from 3.01% in August. Estimates ranged from a high of 0.35% for Barclays to a low of 0.29% for Oxford Economics.

“The picture is not trivial, with inflation high and intensifying,” wrote Alex Pelle, senior U.S. economist at Mizuho Securities. “Based on economic data alone, there is little reason for the Fed to hesitate to continue raising its policy rate.”

Fed Chairman Kevin Warsh has suggested that one litmus test for not raising monetary policy is confidence that inflation will quickly return to the Fed’s 2% target. Both headline and core PCE inflation have been above target since 2021. They have risen steadily since the tariffs were introduced in April 2025. Gains have accelerated since the start of the Iran war.

The Fed prefers PCE because, compared to CPI, it believes it more closely resembles how Americans actually spend their money and changes its weighting when consumers change their spending habits.