Wholesale prices jumped 6.3% annually in September, biggest gain since 2022

September's producer price index surged 6.3 percent annually, the largest gain since December 2022, according to the Bureau of Labor Statistics released Thursday. The monthly reading climbed 1.3 percent, marking the biggest increase since March 2022. Both figures exceeded economist forecasts by a significant margin. Dow Jones-polled economists had predicted 0.6 percent monthly growth and 5.5 percent annual inflation.

Energy prices drove the bulk of the increase as Middle East conflict curtailed oil supply. The core PPI, which excludes food and energy, rose 0.7 percent monthly and 5 percent annually. Still above expectations, the core reading suggests inflationary pressure has spread beyond volatile commodities. The BLS reported that nearly half of September's processed goods increase tied directly to rising diesel fuel prices, indicating downstream effects across supply chains.

Wednesday's consumer price index told a similar story. The CPI rose 0.6 percent from August to September and 3.7 percent year-over-year, both exceeding Dow Jones forecasts of 0.6 percent and 3.6 percent respectively. Core CPI, excluding food and energy, added 0.3 percent monthly and 2.6 percent annually, topping expectations of 0.2 percent and 2.5 percent.

The Federal Reserve's Beige Book, released Wednesday, contained the highest number of inflation-related mentions on record, according to analysis by Bespoke Investment Group. This marks a stark shift from earlier expectations of cooling price pressures.

Consumer behavior shows cracks under price pressure. Retail sales grew 0.8 percent in September, beating the 0.4 percent forecast, but core retail sales excluding autos and gas stations increased only 0.25 percent, down sharply from 1.1 percent in August. The divergence suggests consumers reduced discretionary purchases to accommodate higher fuel and food costs.

Fed rate hike expectations shifted notably. Traders now price in a 34 percent chance of a rate increase at the October 28 meeting, up from under 18 percent a week prior, according to CME's FedWatch tool. About 90 percent expect at least one rate hike by year-end. Chris Zaccarelli, investing chief at Northlight Asset Management, said the twin inflation misses "seem the Fed will have no choice but to raise rates again this year."