Wholesale Prices Surge 6.3 Percent in September — Biggest Annual Jump Since 2022

Inflation pressures intensified in September as wholesale prices posted their largest annual increase in nearly two years, according to data released Thursday by the Bureau of Labor Statistics. The producer price index climbed 6.3 percent year over year, while the monthly gain of 1.3 percent marked the steepest rise since March 2022.

The readings far exceeded economists' expectations, with the consensus forecast calling for a 0.6 percent monthly advance and 5.5 percent annual growth, according to Dow Jones polling. The hotter-than-expected data underscores the persistent inflationary pressure stemming from elevated energy costs amid the ongoing U.S. conflict with Iran.

Energy prices drove a substantial portion of the wholesale inflation surge, as Middle East tensions have curtailed oil supply and sent fuel costs soaring. But economists warn that the pain is spreading beyond the gas pump, with soaring energy costs beginning to infiltrate other sectors of the economy.

Core Inflation Also Running Hot

Even when volatile food and energy prices are stripped out, the so-called core producer price index added 0.7 percent in September and 5 percent over the 12-month period. That suggests inflationary pressures are becoming more entrenched across the broader economy.

The Bureau of Labor Statistics noted in Thursday's release that almost half of September's increase in processed goods for immediate demand was connected to the rise in diesel fuel prices. That indicates higher energy costs are cascading through supply chains and driving up prices for a wide range of goods.

The wholesale inflation data arrives on the heels of Wednesday's consumer price index release, which also came in hotter than anticipated. The CPI rose 0.6 percent month over month and 3.7 percent annually in September. Core CPI, excluding food and energy, increased 0.3 percent monthly and 2.6 percent year over year, both above forecasts of 0.2 percent and 2.5 percent, respectively.

Retail Sales Growth Masks Underlying Weakness

Separately, the Commerce Department reported Thursday that retail sales grew 0.8 percent in September, topping the 0.4 percent consensus estimate. However, the figure marked a notable deceleration from August's gain of more than 1 percent.

When auto and gas station spending are excluded, retail sales increased just 0.25 percent in September, down sharply from around 1.1 percent in the prior month. The slowdown suggests that elevated fuel prices are forcing consumers to cut back on discretionary spending in other categories.

Chris Zaccarelli, chief investment officer at Northlight Asset Management, said the back-to-back inflation surprises put the Federal Reserve in a difficult position. "With a second day in a row of higher-than-expected inflation numbers, it seems the Fed will have no choice but to raise rates again this year," Zaccarelli said.

Rate Hike Odds Surge

Financial markets are now pricing in a significantly higher probability that the Federal Reserve will resume its interest rate hiking campaign. Fed funds futures traders are assigning a nearly 34 percent likelihood that the central bank raises borrowing costs at its October 28 meeting, up from under 18 percent a week ago, according to CME's FedWatch tool.

About 90 percent of traders expect at least one rate hike by the end of the year, reflecting growing concern that inflation remains stubbornly above the Fed's 2 percent target.

The Federal Reserve's most recent Beige Book, a survey of economic conditions across the 12 regional Fed districts, contained the highest number of mentions of inflation-related terms on record, according to an analysis from Bespoke Investment Group. The finding suggests businesses across the country are grappling with persistent price pressures.

These inflation reports arrive just weeks before the 2026 midterm elections, which could reshape the balance of power in Washington and influence the government's approach to addressing rising prices. Economic concerns are expected to loom large in voters' minds as they head to the polls next month.