Economists: Hot PPI shows Fed's work is not done

Key points

• Producer prices rose 1.3% in September, the biggest monthly gain since March 2022.
• Year-over-year PPI inflation hit 6.3%, driven partly by a 20% jump in gasoline prices.
• Wall Street expects core PCE inflation to rise 0.32% in September, up from 0.25% in August.

A hotter-than-expected producer price index has led Wall Street economists to raise their forecasts for the Federal Reserve's preferred inflation measure. The PPI rose 1.3% on a monthly basis, more than double the 0.6% consensus, according to CNBC.

The increase pushed the year-over-year PPI rate to 6.3%, the largest jump since December 2022. Gasoline prices climbed 20%, but even after excluding food, energy and trade services, prices still rose 0.5%, suggesting inflation was broader than energy alone.

Higher PCE forecasts

Seven Wall Street estimates gathered by CNBC show core personal consumption expenditures inflation for September is forecast to rise 0.32%, up from 0.25% in August. That would lift the year-over-year core rate to 3.1% from 3.01%. Estimates ranged from 0.35% at Barclays to 0.29% at Oxford Economics.

The Fed prefers the PCE measure because it believes it better reflects how Americans actually spend their money and adjusts weightings when spending patterns change.

We see real risks the Fed will deliver another rate hike in two weeks' time even as recent Fedspeak tempered expectations for back-to-back increases

— Kathy Bostjancic, chief economist at Nationwide

Rate hike expectations

Fed futures on Thursday showed just a 29% probability of a hike at this month's meeting, but a 91% probability of at least one hike by December. Several Fed officials have said the central bank does not need to hurry, though they have suggested more hikes are needed.

Kathy Bostjancic, chief economist at Nationwide, wrote that there are "real risks the Fed will deliver another rate hike in two weeks' time." Alex Pelle, senior U.S. economist at Mizuho Securities, wrote that the inflation picture is not benign and that economic data give little reason for the Fed to hesitate.