September PPI rises 1.3% as Wall Street lifts core PCE estimates
A stronger-than-expected producer-price report led economists to raise forecasts for the Fed’s preferred inflation indicator, while the rate outlook remained uncertain.
By Sofia Marchetti · Columnist
· 3 min read
The September PPI Fed outlook grew more complicated after producer prices rose 1.3% for the month, more than twice the 0.6% consensus estimate, according to CNBC. For investors, the report matters because it prompted higher estimates for a consumer inflation measure the Federal Reserve prefers, though it did not settle whether the central bank will raise rates again.
CNBC reported that the producer price index was up 6.3% from a year earlier. A 20% increase in gasoline prices drove much of the monthly gain, but prices excluding food, energy and trade services also increased 0.5%, a sign that the pressure was not confined to energy, CNBC said.
What does the September PPI report mean for the Fed?
Seven Wall Street forecasts compiled by CNBC projected a 0.32% monthly increase in September core personal consumption expenditures, or core PCE, compared with a 0.25% rise in August. That is a 0.07-percentage-point increase in the projected monthly pace, not a released PCE result.
The estimates ranged from 0.29% at Oxford Economics to 0.35% at Barclays. CNBC said a 0.32% monthly result would bring annual core PCE inflation to 3.1%, from 3.01% in August. CNBC describes PCE as the Fed’s preferred inflation indicator.
Wall Street economists use consumer-price and producer-price reports to estimate PCE before its release, according to CNBC. The next PCE release will provide an actual reading on the consumer-spending measure, rather than economists’ forecasts based on CPI and PPI.
Economists see more pressure, but no decided rate move
Kathy Bostjancic, Nationwide’s chief economist, wrote that another rate increase in two weeks was a real risk, even after recent remarks from Fed officials had reduced expectations for consecutive increases. Alex Pelle, a senior U.S. economist at Mizuho Securities, wrote that elevated and intensifying inflation gave the Fed little economic-data-based reason to hold off on further rate increases.
Market pricing reflected less certainty about the immediate meeting. CNBC reported that federal-funds futures implied a 29% chance of a rate increase at the Fed’s meeting at the end of the month, alongside a 91% probability of at least one increase by December. Those figures are market-based probabilities, not a policy commitment from the Fed.
How Fed policy fits into the inflation data
The Federal Reserve says its policymakers pursue maximum employment and stable prices. The Fed’s Federal Open Market Committee judges 2% annual inflation, measured by the PCE price index, to be consistent with those goals, according to the Federal Reserve.
Raising the target range for the federal funds rate is known as monetary-policy tightening. The Fed says it may use tighter policy when inflation is too high, while also weighing labor-market conditions. Its decisions therefore draw on more than one inflation report.
This story draws on original reporting from CNBC.
