The Producer Price Index (PPI) for September posted a moderate gain of 0.5 percent, partly reflecting a 5.4 percent jump in gasoline prices. The year-over-year rise in the September PPI was up to 2.2 percent (up from 1.6 percent in the year ending in August).  Food prices rose by 0.9 percent in September which was the second rise in the past three months. Prices jumped for red meats, pork, and chicken which will be passed along to shoppers.   

The core PPI, which excludes food, energy, and trade prices), was up by a tame 0.2% in September for the second straight month.  September core prices were up 2.8 percent from a year ago, about the same as in the four previous months. 

Services price hikes are finally subsiding. The final demand services PPI rose by 0.3% in September but rose to 2.6 percent from September 2022 (up from 2.1 percent in the year ending in August). Unlike Goods PPI and even the topline PPI result, Services PPI has not seen consistent declines since the start of 2023 which complicates interpretation of the year-over-year metric. Services PPI is up 2.4 percent at an annual rate in the first nine months this year – an acceptable result in perspective, but still in contrast to the core goods PPI’s rise of only 1.7 percent at an annual rate through September 2023. 

Consumer spending remains focused on services despite ever-higher prices, with the Q2 2023 real GDP report from the Bureau of Economic Analysis showing Real Personal Consumption Expenditures growth for services up 1.0% annually versus up 0.5% annually for spending on goods. A similar pattern of relative strength in services versus goods spending will be even more evident in the 3Q 2023 real GDP report due out later this month. As long as consumers continue to spend on services, service providers will continue to pass along any and all rises in their own costs, especially higher labor costs, to their customers. 

The moderate September PPI report will reinforce the FOMC’s decision to hold the funds rate steady at 5.25-5.50 percent at their meeting on November 1 for a second straight meeting. 

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