Anyone hoping for signs of cooler inflation in the US (so, everyone), was disappointed Wednesday, on the eve of another critical CPI report.
Producer prices in the world’s largest economy rose 0.4% in September from August (figure below), double consensus.
The range of estimates, from more than four-dozen economists, was -0.4% to 0.4%. So, the actual monthly print matched the highest guess.
The MoM pace of core PPI growth accelerated to the highest since May.
Both goods and services contributed, with final demand prices for each rising 0.4% in September from the prior month. That marked a stark reversal of fortune for goods, which notched two consecutive outsized monthly declines as gas prices fell over the summer.
Within goods, the energy index rose 0.7%, and final demand food 1.2%. The disconcerting read on the food index (figure below) accounted for 60% of the overall increase in the goods gauge.
An index of fresh and dried vegetables rose almost 16%, which the BLS called a “major factor” (it’s also a very, very volatile series).
In services, a gauge of prices for traveler accommodations rose sharply, and indexes for food and alcohol retailing, portfolio management, machinery and vehicle wholesaling, oil and gas well drilling services and hospital inpatient care all rose too.
On a 12-month basis, headline PPI growth in September was 8.5%, the coolest since July of 2021 (figure below), but slightly ahead of estimates. “Cool” is still a misnomer.
Core stuck at 5.6%.
All in all, there was nothing about September PPI that suggested price growth in the US is set to abate. If anything, it seemed to show pipeline pressure broadening out.
Obviously, the report will be overshadowed by Thursday’s CPI figures, but, as BMO’s Ian Lyngen put it, “there is little question it was a strong inflation print.” In other words: Incrementally bad news.
The data clearly demonstrates that we need the FED in their forward guidance, to emphasize demand destruction in vegetables:)
Shouldn’t be a problem. The only thing Americans despise more than reading is vegetables.
Maybe don’t like music too much, either.
The Fed’s aggressive strategy to raise interest rates to reduce inflation hasn’t shown much effect so far, and prices are still rising rapidly.
They say if the economy slows, inflation is bound to slow. They say when consumers and businesses buy less stuff, a decline in demand will force prices to level off or even fall as companies run out of people to sell stuff to.
A good way companies run out of people to sell stuff to is that companies lay off and fire their workers. Hence, if unemployed they don’t spend money.
Well, we see Intel Corp. is planning to fire thousands of workers by the end of the month. A company’s share prices always go up when they announce layoffs and firings, so that’s good news for investors.
I think certain sectors (such as housing construction activity, real-estate) are very much being impacted by the interest rate hikes.
But very hard to create demand destruction in food, for example. Americans may not like vegetables on their plates, may not like to read but they still have to eat. And they still love to drive their cars. So can energy costs go down in a supply constrained environment?
The big issue is that that the US unemployment rate fell to 3.5 percent in September 2022, matching July’s 29-month LOW. Overall labor market conditions in the world’s largest economy remain tight. And it will take more than a few thousand workers to bring that figure up.