Producer Prices Surge in September, Raising Mortgage Rate Concerns
September’s producer price index came in much hotter than economists forecast, underscoring continued energy-driven inflationary pressure amid the U.S. war with Iran.
The measure of underlying inflation pressures rose 1.3% in September and 6.3% annually, according to the Bureau of Labor Statistics. That marked the largest monthly and annual gains since March 2022 and December 2022, respectively.
Both readings topped expectations of economists polled by Dow Jones, who forecast an advance of 0.6% on the month and 5.5% annually.
The PPI affects mortgage rates by signaling future inflation trends that influence bond yields and Federal Reserve monetary policy.
A Hot PPI
A hot PPI signals rising producer costs, which usually pass down to consumers as higher retail prices. It said that bond investors demand higher yields to protect against inflation, causing mortgage-backed security prices to fall and mortgage rates to rise.
A hot PPI also pressures the Federal Reserve to consider raising or maintaining higher interest rates.
CNBC noted that energy drove a sizable piece of the PPI increases as the Middle East conflict curtailed oil supply and sent prices surging. The so-called core PPI, which excludes volatile food and energy prices from the wholesale inflation index, added 0.7% on the month and 5% over the 12 months, the Bureau of Labor Statistics said.
There are signs that soaring energy prices are having downstream effects on other categories. The bureau said in Thursday’s release that nearly half of September’s increase in processed goods for immediate demand was connected to the rise in diesel fuel prices.
The PPI release is the latest report in recent days showing that inflation continues to hit consumers and companies.
Wednesday’s consumer price index release showed an increase of 0.6% from August to September and 3.7% on a 12-month basis. Economists polled by Dow Jones had forecast growth of 0.6% and 3.6%, respectively.
Excluding food and energy, the core CPI added 0.3% on the month and 2.6% compared with a year ago. CNBC noted that economists anticipated increases of 0.2% and 2.5%, respectively.
Retail Sales Grew
Retail sales grew 0.8% in September, topping the rate of 0.4% anticipated by economists, according to government data released in a separate report Thursday. That marked a slowdown from a month prior, when retail sales rose by more than 1%.
The BLS noted that excluding spending on autos and gas stations, retail sales rose 0.25% from August to September, a drop from around 1.1% in the prior period. This slowdown signals that high prices related to fuel are causing consumers to tighten their belts elsewhere.
