Marketdash
Back to News

Producer Prices Jump on Energy Surge While Shoppers Tap the Brakes

MarketDash Editorial Team
13 days ago
September brought a 0.3% rise in producer inflation driven by energy costs, but retail sales disappointed and consumer spending cooled, pushing December Fed rate cut odds to 85%.

Producer inflation made a comeback in September, bouncing back into positive territory after a brief summer lull. The culprit? Energy prices, which reminded everyone that they're still capable of moving the needle. Meanwhile, American consumers appear to be experiencing some spending fatigue, with retail sales figures coming in cooler than expected and adding fuel to the debate over whether the Fed will cut rates again next month.

The Producer Price Index rose 0.3% month-over-month, matching what economists anticipated and reversing August's 0.1% decline, according to data released Tuesday by the Bureau of Labor Statistics. Year-over-year, producer inflation held steady at 2.7%, suggesting inflationary pressures at the wholesale level aren't exactly disappearing.

Energy was the star of the show—or villain, depending on your perspective. Gasoline prices soared 11.8% from August to September, driving final demand goods up 0.9%, the biggest monthly jump since February. Food prices also climbed 1.1%, though goods excluding food and energy barely budged, rising just 0.2%.

Core PPI, which strips out the volatile food, energy, and trade services components, rose a modest 0.1% on the month, missing the 0.2% consensus. That's the good news. The less-great news: on a yearly basis, core PPI remained elevated at 2.9%, above the expected 2.7%.

Services inflation stayed flat in September. A 4% spike in airline ticket prices and gains in transportation services were offset by a 3.5% drop in machinery and equipment wholesaling margins, plus declines in retail margins across autos, apparel, and financial services.

Shoppers Losing Steam

On the consumer side, Americans pulled back more than anticipated. Retail sales rose just 0.2% in September, down from August's 0.6% gain and below the 0.4% forecast. Excluding autos, sales increased 0.3%, decelerating from August's 0.6% rise and missing the 0.4% estimate.

The retail control group—the measure that feeds directly into GDP calculations—actually declined by 0.1%, missing expectations for a 0.3% gain and marking its first contraction since April. That's a detail worth paying attention to if you're watching economic growth.

Where did consumers still spend? Miscellaneous store retailers saw the strongest gains, up 2.9%, while gasoline stations rose 2.0%. Weakness showed up in clothing accessory stores and nonstore retailers, both down 0.7%.

Despite the monthly slowdown, annual retail sales growth remained respectable at 4.3%, though that represents a deceleration from August's 5% pace.

What Markets Are Thinking

Tuesday's economic data didn't dramatically shift rate expectations. Futures markets are still pricing in an 85% probability of a 25-basis-point rate cut at the Federal Reserve's December 10 meeting, according to the CME FedWatch tool. That probability has climbed sharply in recent days, supported by increasingly dovish comments from Fed officials.

On the equity front, Monday delivered the strongest session for tech stocks in over six months. The Invesco QQQ Trust (QQQ), which tracks the Nasdaq 100, jumped 2.6%, while the broader Vanguard S&P 500 ETF (VOO) rose 1.5%. U.S. index futures were flat in premarket trading Tuesday.

Back to News

Producer Prices Jump on Energy Surge While Shoppers Tap the Brakes

MarketDash Editorial Team
13 days ago
September brought a 0.3% rise in producer inflation driven by energy costs, but retail sales disappointed and consumer spending cooled, pushing December Fed rate cut odds to 85%.

Producer inflation made a comeback in September, bouncing back into positive territory after a brief summer lull. The culprit? Energy prices, which reminded everyone that they're still capable of moving the needle. Meanwhile, American consumers appear to be experiencing some spending fatigue, with retail sales figures coming in cooler than expected and adding fuel to the debate over whether the Fed will cut rates again next month.

The Producer Price Index rose 0.3% month-over-month, matching what economists anticipated and reversing August's 0.1% decline, according to data released Tuesday by the Bureau of Labor Statistics. Year-over-year, producer inflation held steady at 2.7%, suggesting inflationary pressures at the wholesale level aren't exactly disappearing.

Energy was the star of the show—or villain, depending on your perspective. Gasoline prices soared 11.8% from August to September, driving final demand goods up 0.9%, the biggest monthly jump since February. Food prices also climbed 1.1%, though goods excluding food and energy barely budged, rising just 0.2%.

Core PPI, which strips out the volatile food, energy, and trade services components, rose a modest 0.1% on the month, missing the 0.2% consensus. That's the good news. The less-great news: on a yearly basis, core PPI remained elevated at 2.9%, above the expected 2.7%.

Services inflation stayed flat in September. A 4% spike in airline ticket prices and gains in transportation services were offset by a 3.5% drop in machinery and equipment wholesaling margins, plus declines in retail margins across autos, apparel, and financial services.

Shoppers Losing Steam

On the consumer side, Americans pulled back more than anticipated. Retail sales rose just 0.2% in September, down from August's 0.6% gain and below the 0.4% forecast. Excluding autos, sales increased 0.3%, decelerating from August's 0.6% rise and missing the 0.4% estimate.

The retail control group—the measure that feeds directly into GDP calculations—actually declined by 0.1%, missing expectations for a 0.3% gain and marking its first contraction since April. That's a detail worth paying attention to if you're watching economic growth.

Where did consumers still spend? Miscellaneous store retailers saw the strongest gains, up 2.9%, while gasoline stations rose 2.0%. Weakness showed up in clothing accessory stores and nonstore retailers, both down 0.7%.

Despite the monthly slowdown, annual retail sales growth remained respectable at 4.3%, though that represents a deceleration from August's 5% pace.

What Markets Are Thinking

Tuesday's economic data didn't dramatically shift rate expectations. Futures markets are still pricing in an 85% probability of a 25-basis-point rate cut at the Federal Reserve's December 10 meeting, according to the CME FedWatch tool. That probability has climbed sharply in recent days, supported by increasingly dovish comments from Fed officials.

On the equity front, Monday delivered the strongest session for tech stocks in over six months. The Invesco QQQ Trust (QQQ), which tracks the Nasdaq 100, jumped 2.6%, while the broader Vanguard S&P 500 ETF (VOO) rose 1.5%. U.S. index futures were flat in premarket trading Tuesday.