Up 0.4% for September 2022

• The Final Demand Producer Price Index (PPI) rose by 0.4% in September 2022
• Core PPI, less Food & Energy, maintained its recent pace at +0.3% month-over-month in September 2022
• Energy PPI bounced back from recent declines, rising 0.7% for the month of September 2022
• Transportation & Warehousing costs fell by 0.2% for September 2022

The Producer Price Index (PPI) for September 2022 rose versus the month prior, up 0.4% versus August. This translates to an 8.5% year-over-year gain, which is down from the 11.2% mark posted in June. Perhaps more importantly, the September monthly rise equals 4.7% at an annualized pace, representing producer price inflation if current conditions were to be maintained for a one-year period.

This metric provides a sense of real-time cost pressures, rather than suffering from potential distortions due to price growth trends throughout the past year that may have changed course. Producers of goods and services have been passing their inflated costs onto consumers steadily throughout the last two years as inflation has reached every corner of the U.S. economy. The driving forces on this front for the coming months will be whether producers’ own costs continue to see upward pressure and whether consumers can – or are willing to – endure further price hikes and maintain consumer spending trends.

Producers’ Energy prices were up for September 2022 versus August by 0.7%. This is the first gain for this index component since June. Despite the September increase, the Energy component index is on par with the March 2022 index level (155.515 vs. 155.512), which is when energy prices began to ramp up dramatically after Russia’s invasion of Ukraine.

Energy costs are likely to exert pressure on producers in the coming months given that OPEC has decided to cut production. Oil prices have an effect on the costs of production directly, as well as on the cost of transporting goods to markets. So for every increase in the PPI Energy component index, one can expect an effect on other PPI components and eventually on consumer prices as those costs are passed on.

In a sign that the surge in producer costs throughout 2022 has eased somewhat, Intermediate Demand PPI continued to trend downward across several key sectors of the U.S. economy. Transportation & Warehousing, Construction, and Manufacturing Intermediate Demand indices all posted declines for September 2022 versus the month prior.

Intermediate Demand among manufacturers, according to this PPI component index, was down for a fourth consecutive month while Transportation & Warehousing declined for a second month in a row. Even as energy prices are expected to increase in the near term as a result of supply constraints thrust upon the global economy by OPEC, the fact that declines from the last energy price shock have held sway for several months suggests that a new equilibrium could be established after this renewed push makes its mark, rather than sparking a renewed upward spiral.

The Federal Reserve’s monetary policy tightening plans remain aggressive. The “Demand Destruction” among households that the Fed has aimed at through higher borrowing costs has been evident in the U.S. housing market, with Existing Single-Family Homes throughout August 2022 declining at their fourth fastest 8-month pace on record. Goods and services providers will be vying for consumer dollars as the economy enters the holiday shopping season, but the overall demand among households looks to have been tempered to some degree but will have to remain so before the Fed considers taking its foot off the policy tightening accelerator.