In September, wholesale prices remained stable, indicating a slowdown in inflation, according to a report by the Labor Department. The producer price index, which measures the prices received by producers for their goods and services, did not change for the month and was up by 1.8% from a year ago. Economists had anticipated a 0.1% increase for the month, following August’s 0.2% rise.
Excluding food and energy, the PPI increased by 0.2%, in line with expectations, and was up by 2.8% from a year ago. This data comes after the Labor Department reported a 0.2% increase in the consumer price index for the month and a 2.4% increase from a year ago.
Despite the data, the market reaction was muted initially, with futures on Wall Street edging higher and Treasury yields increasing on longer-duration securities. However, stocks later climbed, with the Dow Jones Industrial Average gaining over 300 points, supported by strong bank earnings reports.
These reports suggest that inflation has slowed down from its peak two years ago but remains above the Federal Reserve’s 2% target. While the PPI and CPI are not the Fed’s primary inflation indicators, they contribute to the personal consumption expenditures price index that policymakers prefer. Economists predict that the PCE deflator will likely show a 0.2% or slightly higher increase for the month when it is released in late October.
“The latest PPI and CPI data confirm the trend of decreasing inflation but also highlight that we are not on a straightforward path to 2%,” said Oren Klachkin, a markets economist at Nationwide Financial. Additionally, the University of Michigan Survey of Consumers reported a decline in sentiment in October, accompanied by an increase in near-term inflation expectations to 2.9%, the highest level since June.
Within the PPI, a 0.2% decrease in final demand goods prices was offset by a 0.2% increase in services. Excluding trade services, the core PPI rose by 0.1%. Deposit services costs surged by 3%, while prices for professional and commercial equipment wholesaling dropped by 6.3%.
On the goods side, a 2.7% decline in final demand for energy was the primary reason for the decrease, with gasoline prices falling by 5.6% and diesel fuel prices plunging by 17.6%. Despite some sectors like shelter, food, and vehicle costs showing persistent higher prices, Fed officials remain optimistic that inflation will return to target.
The minutes from the September central bank meeting revealed a divide among policymakers over the decision to cut the Fed’s benchmark interest rate by half a percentage point. Most officials are inclined to continue cutting rates as long as the data supports it. Market expectations point towards a quarter percentage point cut at each of the two remaining Fed meetings this year.
