The producer price index rose 1.3% in a single month on Thursday, marking the largest monthly gain since March 2022 and more than double what economists had expected. Year-over-year, producer prices climbed 6.3%, the steepest increase since December 2022, driven largely by a 20% surge in gasoline prices. Excluding food, energy and trade services, prices still rose 0.5%, suggesting inflation was spreading across the broader economy.
Wall Street economists surveyed by CNBC now forecast that the Federal Reserve's preferred inflation measure, core personal consumption expenditures, will have risen 0.32% in September when released later this month, up from 0.25% in August. If that forecast proves accurate, year-over-year core PCE inflation would reach 3.1%, compared with 3.01% in August. Estimates from major banks ranged from a high of 0.35% to a low of 0.29%.
The stronger-than-anticipated data has raised expectations for a rate hike. Kathy Bostjancic, chief economist at Nationwide, wrote that "real risks" exist the Fed will raise rates in two weeks, despite recent comments from Fed officials suggesting no rush to hike. Fed futures on Thursday reflected just a 29% probability of a hike at the end of this month, but a 91% probability of at least one hike by December.
Alex Pelle, senior U.S. economist at Mizuho Securities, noted that "the picture is not benign with inflation elevated and intensifying," adding that economic data alone gave little reason for the Fed to pause its rate increases. Headline and core PCE inflation have remained above the Fed's 2% target since 2021, and have accelerated since the Iran war began.