WASHINGTON (AP) — Wholesale inflation cooled a bit last month yet remains elevated, evidence of stubbornly higher prices that have soured Americans on the economy and fueled big gains for Democrats in the midterm elections last week.
The Labor Department's producer price index — which captures inflation before it reaches consumers — rose 0.3% from September to October, down from a 1.4% jump in the previous month. Yet compared with a year earlier, it climbed 6.5%, up from 6.3% in September and the biggest increase since November 2022, the government said Friday. A year ago, wholesale inflation was just 3.1%.
Friday's report suggests prices are still rising at a pace well above the Federal Reserve's 2% annual target. On Tuesday, the government reported that the more widely known consumer price index accelerated in October, driven by rising costs across a wide range of goods and services. Many Fed officials suggested in response that they will almost certainly need to raise their key short-term rate further, perhaps more than once, to combat inflationary pressures in the economy.
When the Fed lifts its rate, other longer-term borrowing costs for things like mortgages, auto loans, and credit cards also rise.
Excluding the volatile food and energy categories, core prices also rose 0.3% from September to October, down from 0.7% a month earlier. On a yearly basis, they rose 5%, the same as in September.
Wholesale inflation cooled largely because overall energy prices levelled off. Yet there were signs that high gas prices are spreading into other sectors. And the buildout of artificial intelligence data centers is also pushing up a range of costs.
"Costs for food and transportation climbed sharply as high fuel prices flow into other parts of the economy," Ben Ayers, senior economist at Nationwide, wrote in a note. "This creates further upward pressure for food and broader goods inflation ahead even as oil prices have cooled over the past few weeks."
The producer price index provides a signal about where inflation for consumers may be headed.
Wholesale diesel prices dropped 7.9% just from September to October. Still, the impact of more expensive diesel since the Iran war was clear in the report: Prices for freight shipped by truck jumped 3.9% last month, while food prices rose 1.3%. Food, like most goods, is mostly shipped by truck.
The price of electronic components soared 4.2% and industrial chemical prices rose 3.1% just last month, a sign of the demand fueled by the AI buildout.
Economists monitor the PPI because some of the data also feeds into a separate price gauge, the personal consumption expenditures price index, which is closely watched by the inflation-fighters at the Fed. The central bank aims to bring inflation, as measured by the PCE index, to 2%.
Friday's release of the wholesale inflation report suggests that core prices, according to the Fed's preferred inflation gauge, will rise about 0.3% from September to October when it is reported later this month, according to economists at Morgan Stanley. On a yearly basis, core inflation will likely increase to 3.2% from 3.1%, they estimate.
An acceleration in core inflation, as measured by the PCE, would intensify concerns at the Fed that more interest rate hikes are needed to combat rising prices.