High energy prices continue to ripple through U.S. supply chains, increasing costs for businesses and paving the way for further increases in the coming months for U.S. consumers.
Wholesale inflation accelerated last month to its highest rate in nearly four years, Bureau of Labor Statistics data showed Friday.
The producer price index, a measure of average price changes received by producers and manufacturers, increased 0.3% from the previous month and 6.5% for the 12 months ended October, the highest annual rate since November 2022.
The war in Iran and the resulting energy shock have driven up gas and diesel prices in recent months.
Fuel prices didn’t rise as quickly last month as they did in September (when the PPI rose at a dizzying 1.4% to 6.3%); However, the knock-on effects of the rise in recent months, combined with other, more persistent price pressures, have kept wholesale inflation quite high.
Notably, food prices climbed rapidly for the second consecutive month, increasing 1.3% in October – the fastest monthly increase since July 2022 – after increasing 1.1% in September.
In the food sector, the largest price increases were seen for manufactured goods, which are primarily transported via the trucking sector, which has been hit hard by rising diesel prices. Friday’s report showed that wholesale prices of fresh and dried vegetables jumped 26.7% in October, following a 30.7% jump in September.
High diesel costs continue to trickle down to other categories, increasing transportation and warehousing costs.
Excluding gas and food prices, the core PPI increased by 0.3% on a monthly basis and by 5% over the year, corresponding to a rate last seen in January 2023.
At the same time, massive investments in artificial intelligence technologies and equipment are contributing to a new layer of inflationary pressures.
Electronic components and accessories, which grew at the fastest six-month pace of 4.2%, are up 31.7% from a year earlier, the highest annual rate on record, according to BLS data dating back to December 1966.
Although the PPI does not translate directly into the Consumer Price Index, its trajectory and category-specific price increases can serve as a potential indicator of what consumers might experience in the months to come.
“It’s clear from Economics 101 that producer prices determine consumer prices; and right now, it looks like consumers will face another bout of factory inflation,” Christopher Rupkey, chief economist at FwdBonds, wrote Friday. “Everywhere you look, inflation is rising and making the affordability crisis even more difficult for Americans. »
Friday’s PPI data, coupled with the higher-than-expected October CPI released earlier this week, are expected to lead to a rate hike from the Federal Reserve when policymakers meet in early December.
Markets expect an increase of a quarter point; However, Fed Governor Christopher Waller indicated earlier this week that a half-point hike may be necessary.
The Fed may not stop there, said Ben Ayers, Nationwide’s senior economist.
“The lingering impacts of soaring fuel prices could persist through 2027, warranting further tightening by the Fed to limit the impacts of second- and third-order inflation,” he wrote in a note Friday.
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