Wholesale inflation rose in October to highest annual rate in nearly four years

ATLANTA — High energy prices continue to ripple through US supply chains, raising the costs for businesses and setting the stage for further increases in the coming months for American 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 measurement of average price changes received by producers and manufacturers, rose 0.3% from the month before and 6.5% for the 12 months ended in October, the highest annual rate since November 2022.

The Iran war and the resulting energy supply shock have sent gas and diesel prices markedly higher in recent months.

Fuel prices didn't rise as quickly last month as they did in September (when PPI rose at a breakneck rate of 1.4% to reach 6.3%); however, the ripple effects from the recent months' surge, coupled with other more persistent price pressures, kept wholesale inflation quite elevated.

Notably, food prices climbed rapidly higher for the second consecutive month, rising 1.3% in October – the fastest monthly hike since July 2022 – after increasing 1.1% in September.

Within food, the largest price spikes were seen for produce products, which are primarily transported via the trucking industry, which has been hit hard by spiking diesel costs. Friday's report showed that wholesale fresh and dry vegetables prices jumped 26.7% in October, following a 30.7% leap in September.

The high diesel costs continue to flow to other categories, lifting transportation and warehousing costs.

Excluding gas and food prices, core PPI rose 0.3% on a monthly basis and 5% annually, matching a rate last seen in January 2023.

At the same time, the massive investment in artificial intelligence technology and equipment are contributing another layer of inflationary pressures.

Electronic components and accessories, which rose at a six-month high pace of 4.2%, are up 31.7% from the year before, the highest annual rate on record, according to BLS data that goes back to December 1966.

While PPI doesn't translate directly to the Consumer Price Index, its trajectory and category-specific price hikes can serve as a potential bellwether for what consumers could experience in the months to come.

"It is Economics 101 that producer prices lead consumer prices; and right now, it looks like consumers will be on the hook for a fresh burst of factory inflation," Christopher Rupkey, chief economist at FwdBonds, wrote Friday. "Everywhere you look inflation is pushing forward and making the affordability crisis for Americans that much harder."

Friday's PPI data, coupled with the hotter-than-expected October CPI released earlier this week, are expected to result in a rate hike from the Federal Reserve when policymakers meet in early December.

Markets are expecting a quarter-point hike; however, Fed Governor Christopher Waller indicated earlier this week that a half-point hike could be necessary.

The Fed might not stop there, said Ben Ayers, Nationwide senior economist.

"Lingering impacts from the spike in fuel prices could linger into 2027, warranting further tightening by the Fed to limit second and third order inflation impacts," he wrote in a note Friday.

Related topics