In September, inflation for US producers slowed, with the Producer Price Index rising by 1.8% for the year, slightly lower than the 1.9% gain in August. This decrease offers hope that prices are not being significantly increased before reaching consumers. While the annual rate exceeded economists’ expectations of a 1.6% gain, it was still lower than the initial estimate for August, indicating a decrease in prices for September. Prices remained flat for the month, with energy prices falling and a 1% increase in food prices, resulting in overall goods deflation. Services saw a slight increase of 0.2%.
Excluding the more volatile categories of food and energy, core PPI rose by 2.8% from the previous year, an acceleration from the 2.6% rate in August. On a monthly basis, the core index advanced by 0.2%. The PPI is an important indicator as it is often seen as a precursor to price increases for consumers down the line. If materials and finished goods become more expensive for manufacturers and producers, it is likely that these price increases could be passed on to consumers, although this is not always the case.
The Consumer Price Index, which measures average price changes for commonly purchased goods and services, cooled to 2.4% in September, marking its lowest rate since February 2021. Inflation in the US has noticeably slowed since peaking in the summer of 2022, with prices rising at an annual pace more in line with the Federal Reserve’s target. This shift has prompted the Fed to pivot from focusing on containing inflation to supporting a healthy job market, the other half of its dual mandate.
The Fed recently cut its benchmark interest rate by half a percentage point and indicated plans for two additional quarter-point cuts by the end of the year, in response to moderate inflation and signs of a weakening job market. However, this outlook has become less certain following a stronger-than-expected jobs report in September and the potential for external factors such as recent hurricanes and geopolitical tensions to impact prices. As the situation continues to develop, updates on inflation, producer prices, and Fed policy will be forthcoming.
