Inflation at the wholesale level ratcheted up strongly in September, after a four-month hiatus--as soaring energy and food prices combined to send the Producer Price Index up sharply last month. In all, this gauge of pricing at the wholesale level jumped 0.8% for the month. That was four times the consensus estimate of a 0.2% increase. 

Underpinning this sizable gain was a 2.3% advance in energy prices and a 0.6% jump in food costs. If we back out these volatile items to get the so-called core rate of PPI growth, we find that prices rose by just 0.2% in the month. However, that was also above expectations, which had called for a flat core inflation reading. This latest metric contrasts with a flat overall, or headline, PPI survey result in August. Interestingly, the September PPI jump comes after four months in which the PPI readings varied from no change to just a 0.2% gain, which was recorded in July. Prior to that, the January-though-April monthly headline PPI measure had come in anywhere from an increase of 0.7% to a gain of 1.5%. 

This measure of wholesale pricing is on finished goods. If we go back a stage in processing to measure the prices received by manufacturers of intermediate goods, we find that prices rose by 0.6% last month. At the early stage of processing, which is termed the crude stage of production, prices soared by 2.8%. This was the first significant rise in intermediate goods pricing since May, when costs also rose by 0.6%. For crude goods, the aforementioned 2.8% jump was the first material gain in this very voilatile series since April, when such costs had jumped by an outsized 3.9%. Looking over the table, there is not all that much correlation between the three series on a month-to-month basis. That is neither crude nor intermediate goods tends to "lead" finished items. 

As for individual components, in addition to food and energy at the finished goods level, we saw large increases last month in men's and boys' apparel, soaps and synthetic detergents, passenger cars, and tobacco products. Material declines were reported in the cost of footwear, tires, and lawn and garden equipment.

Overall, this was a somewhat disconcerting series, and, as a result, close attention will undoubtedly be paid to the somewhat less volatile Consumer Price Index report, which is scheduled for release tomorrow morning at 8:30 (EDT).


At the time of this report's issuance, the author did not hold, positions in any of the companies mentioned.