Producer prices see biggest jump in four years

On Thursday, we got to see the second act of our monthly inflation double feature: the producer price index. Producer prices rose 1.3% in September, which is the largest jump since 2022.

As opposed to the consumer price index, the producer price index measures “price changes that producers and service providers receive for the sale of their products,” said Scott Sager at the Bureau of Labor Statistics.

Think, for example, of the price an accounting firm charges a business for its services or the price a farmer sells their crop for. “Whether it's a manufacturer who's manufacturing into a type of manufactured food, or if it's being sold ultimately for the public,” Sager explained.

In this month’s data, energy was a major contributor to rising producer prices, though not the only contributor.

“It's a broad-based surprise in inflation that should be quite unpleasant from the Fed's perspective,” said Aditya Bhave with Bank of America Securities.

The September producer data raises the risk that more consumer inflation is coming, he said. “Because for producers, this is an input cost. It may not be a massive share of their input, of their costs, but it's there, and it's moving up. Now the question is, how comfortable do they feel passing those costs on to consumers?”

This is yet another round of shocks caused by the global supply crunch on oil and fuel, per Dana Peterson, chief economist at The Conference Board.

“The first round is immediate, so you can see gasoline prices spiking intraday, but then as producers endure those prices and pass it along or share it — share the burden with the wholesalers, the retailers, and ultimately the consumer — that takes longer.”

So, the higher prices producers are feeling now are expected to ripple out to consumers in the months to come.