Driven by spiking costs of energy and services.

By Wolf Richter for WOLF STREET.

Inflation in prices that businesses pay each other and charge each other – tracked by the Producer Price Index (PPI) – accelerated to 6.3% year-over-year in September, the worst inflation in the realm of businesses since December 2022 (red in the chart).

Inflation has been far more aggressive for businesses than for consumers, though it has also been getting worse for consumers: The Consumer Price Index yesterday accelerated to +3.7% year-over-year. GDP tracks inflation that all economic participants face – consumers, businesses, non-profits, and governments. And these readings in the PPI today and the CPI yesterday tell us that inflation in the overall economy in Q3 was ugly, and we’ll discuss that ugliness here when it is released with the Q3 GDP data at the end of the month.

On a month-to-month basis, the overall PPI spiked by 1.3% (+17.4% annualized) in September from August (blue in the chart), according to the Bureau of Labor Statistics today. Part of it was driven by a huge spike in energy costs, and part of it was driven by a huge spike in the costs of services that businesses buy and pay for.

That’s a lot of inflation in prices that companies pay each other. As the chart above shows, business-facing inflation has accelerated in its zigzag manner since the low point in mid-2023, while the Fed, which is focused on consumer price inflation, has cut its policy rates.

Core PPI Final Demand, which reflects the overall PPI minus the energy and food components, accelerated to 5.0% year-over-year, the worst since January 2023 (red in the chart below).

The index, dominated by the services PPI (see below), has been zigzagging higher since the low point in January 2024.

Month-to-month, the index rose by 0.68% (+8.5% annualized, blue).

The services PPI spiked by 0.82% (+10.3% annualized) in September from August. This was mostly driven by two subindexes, the PPI for transportation and warehousing services and the PPI for trade services, both of which exploded. More on those two in a moment.

Year-over-year the services PPI accelerated to 4.9%, just a hair below April, and both were the worst since December 2022 (red in the chart below).

Services account for 68% of the overall PPI final demand. They move the needle.

The transportation & warehousing PPI, which is within the services PPI, spiked month-to-month by 2.2% (+29.3% annualized, blue), driven by higher input costs, including spiking diesel costs.

Year-over-year, prices soared by 12.4%, the worst since October 2022 (red). It has been zigzagging ever higher since the low point with negative readings in July 2023.

The trade services PPI, which is also within the services PPI, spiked month-to-month by 1.38% (+17.8% annualized, blue), after a low reading in August, and a negative reading in July.

Year-over-year, prices rose by 4.7%, a deceleration from August. That range is about double the normal range before the pandemic (red).

The PPI for core goods, which excludes energy and food components, rose by 5.1% year-over-year, and has been in this range for the past five months. Those five months have been the highest since February 2023.

It has been zigzagging higher since March 2024.

Month-to-month, the index rose by 0.27% (+3.3% annualized, blue).

The PPI for energy spiked by 10.8% month-to-month and by 35.6% year-over-year.

The chart shows the price level of the energy PPI, and not the hugely volatile percentage changes. Note how the price level in September surpassed the June 2022 peak.

The PPI final demand for food spiked month-to-month by 1.2% (+15.7% annualized), after two negative readings in a row in August and July.

Year-over-year, it was unchanged.

The chart shows the price level of the food PPI, and not the hugely volatile percentage changes.

The big food inflation occurred from mid-2020 through 2022, when food costs that businesses faced, such as manufacturers of packaged foods, soared by about 31%, but hit a ceiling and fell in 2023. Since early 2024, prices have zigzagged higher at a moderate pace, from those very high price levels to even higher price levels.

In case you missed it: Inflation Spreads across the Economy, Not Going Back into the Bottle: CPI, Core CPI, Core Services CPI Spike

 

 

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