PPI Report: Wholesale Prices Jump as Input Costs Outrun CPI

Wholesale inflation jumped 1.3% in September, the Bureau of Labor Statistics reported Thursday, Oct. 15, but the sharper signal for businesses sits one step up the supply chain. Prices for the inputs that feed directly into finished goods and services rose 7.9% from a year earlier before seasonal adjustment, more than double the 3.7% consumer inflation rate published Wednesday, Oct. 14. The same report shows who is carrying that gap: gasoline station margins collapsed while wholesalers of machinery, vehicles, food and alcohol widened theirs.

The September PPI Headline Numbers

The BLS Producer Price Index release showed the final demand index up 1.3% on a seasonally adjusted basis, the largest monthly gain since a 1.7% rise in March 2022. Over 12 months, final demand prices climbed 6.3% before seasonal adjustment, the largest increase since December 2022. The bureau revised August to a 0.5% gain, from the 0.4% that TradeFlock reported when the August data came out.

Final demand goods rose 2.6%, the biggest increase since BLS began calculating the series in December 2009. Energy did most of the work. The final demand energy index jumped 10.8%, accounting for more than 80% of the goods increase, and gasoline alone rose 20.3%, which BLS said explained half of the goods gain. Diesel fuel, jet fuel and residential electric power also rose. Chicken egg prices fell 39.7%.

A narrower gauge that strips out food, energy and trade services rose 0.5% for the month and 5.0% over 12 months.

Input Costs Are Running Far Ahead of Consumer Prices

The producer index also tracks prices for goods and services that businesses buy from one another before anything reaches a shopper. Those figures were hotter. Processed goods for intermediate demand rose 2.5% in September and 14.1% over 12 months, the largest annual increase since August 2022. Unprocessed goods, led by a 28.3% jump in crude petroleum, rose 8.4% in the month and 21.5% over the year.

The stage closest to the consumer tells the clearest story. BLS groups intermediate demand into four production stages, and stage 4 covers inputs to the industries that make final goods and services. Its prices rose 1.1% in September on a seasonally adjusted basis and 7.9% over 12 months before seasonal adjustment, the largest annual gain since October 2022. On the seasonally adjusted index, the 12 month gain is 7.8%, by TradeFlock's calculation from BLS series WPSID54.

Set against the Consumer Price Index released Wednesday, Oct. 14, the gap is wide. The CPI rose 0.6% in September and 3.7% over 12 months, and the CPI excluding food and energy rose 2.6% over the year. By TradeFlock's calculation, stage 4 input costs are running 4.2 percentage points ahead of headline consumer inflation, and the producer measure excluding food, energy and trade, at 5.0%, is nearly double core consumer inflation. The two indexes cover different baskets and weights, so the comparison is a gauge of pressure, not a forecast.

Who Is Absorbing the Cost and Who Is Passing It On

BLS measures trade services as margins, the gap between what a wholesaler or retailer pays for goods and what it charges. In September those margins moved in opposite directions depending on the product.

Gasoline is the clearest case of absorption. Producer prices for gasoline rose 20.3%, while the CPI gasoline index rose 9.1%. BLS reported that margins for automotive fuels and lubricants retailing dropped 30.3%, meaning station operators passed through less than their wholesale cost increase. That spread is a TradeFlock reading of the two releases; neither report links the figures directly.

Elsewhere, distributors widened margins. Trade margins for final demand rose 1.4% and accounted for nearly half of the 0.8% rise in final demand services. Margins for machinery and vehicle wholesaling rose 3.9%, which BLS said explained more than 20% of the services increase. On the intermediate side, margins for food and alcohol wholesaling jumped 6.7%, and food retailing margins also rose.

Freight is another channel. Transportation and warehousing prices for final demand rose 3.4%, with truck transportation of freight among the gainers, and diesel fuel for intermediate demand rose 21.0%. Those costs show up in delivered prices with a lag, which is why the intermediate figures matter for shippers, grocers and manufacturers setting fourth quarter prices.

What the Gap Means for the Fed's October Meeting

The Federal Reserve raised interest rates in September for the first time in more than three years. Its next scheduled meeting is Oct. 27 and 28, according to the Federal Open Market Committee calendar.

The Oct. 14 CPI gave policymakers a mixed picture, with core consumer prices up a moderate 0.3% for a second month. The Oct. 15 producer report adds evidence that cost pressure is building upstream, much of it tied to energy. For households, TradeFlock's heating oil price outlook for the winter tracks how those energy costs are reaching consumers. If the 4.2 point gap between stage 4 inputs and consumer prices closes, it can close through higher shelf prices, thinner business margins or cheaper inputs. The September data show the first two happening at once, product by product.

Next Data to Watch

BLS import and export price indexes for September, released Friday, Oct. 16, showed import prices up 1.1% for the month, a sign that part of the energy and goods increase came through imports. The October CPI is scheduled for Tuesday, Nov. 10, and the October PPI for Friday, Nov. 13, both at 8:30 a.m. ET. BLS revised its May through August data in this release, and the September figures can also be revised.

Cover photo: grain elevator at the New York State Barge Canal terminal, Henry Street Basin, Brooklyn, from the Historic American Engineering Record, Library of Congress, public domain, via Wikimedia Commons (cropped).