Economy 5 min read By Bethany Hadley
US producer prices jump most in four and a half years as gasoline lifts retail sales
US producer prices rose at their fastest pace in four and a half years in September, while higher gasoline prices pushed retail sales higher, complicating the inflation outlook for the Federal Reserve.
US producer prices rose at their fastest annual pace in four and a half years in September, while retail sales were lifted by more expensive gasoline, according to data that complicates the inflation picture facing the Federal Reserve.
The producer price index, which measures the prices businesses receive for their goods and services, posted its largest gain since early 2021. The increase was driven in part by energy costs, with gasoline prices feeding through into both producer costs and the retail sales figures.
Retail sales were boosted by higher spending at petrol stations, where consumers paid more per gallon. That lifted the headline sales number even as underlying demand across other categories remained mixed. Economists often strip out gasoline to get a cleaner read on consumer spending, and the underlying picture was less dramatic than the headline suggested.
The combination of rising producer prices and resilient retail sales points to persistent cost pressures in the supply chain that could eventually reach consumers. Producer prices are often seen as an early indicator of consumer inflation because businesses pass on higher input costs to customers.
For the Federal Reserve, the data adds to the difficulty of judging whether inflation is genuinely returning to target or whether recent progress is stalling. Policymakers have been weighing how quickly to adjust interest rates amid signs that price pressures remain uneven across the economy.
Energy costs have been a recurring source of volatility in the inflation data. Gasoline prices are influenced by global oil markets, refinery capacity and seasonal demand, making them hard for central banks to control. When energy prices spike, they can lift headline inflation even as core measures, which exclude food and energy, tell a different story.
The retail sales report suggested consumers are still spending, but the composition of that spending matters. Higher gasoline prices divert household budgets away from discretionary goods and services, which can weigh on broader economic growth even as total sales rise.
Businesses have been navigating a period of elevated input costs, wage pressures and shifting demand patterns. Some have been able to pass costs on to customers, while others have absorbed them in thinner margins. The producer price data suggests that pipeline pressures have not yet fully eased.
The September figures will feed into the Fed's broader assessment of inflation trends. Officials have repeatedly said they need to see sustained progress before adjusting policy, and a single month of stronger producer prices is unlikely to change the overall direction on its own. But it does reinforce the case for caution.
Markets have been sensitive to inflation data throughout the year, with investors adjusting expectations for rate cuts or holds based on each release. A stronger-than-expected producer price reading can push bond yields higher and weigh on equities, particularly in rate-sensitive sectors such as technology and real estate.
The retail sales component also matters for forecasts of consumer spending, which remains the main engine of US economic growth. If higher gasoline prices are squeezing household budgets, that could show up in weaker spending on other goods in the months ahead.
Economists will be watching upcoming data on consumer prices, wages and employment for a clearer picture of whether inflation is settling or reaccelerating. For now, the September producer price report stands as a reminder that price pressures can return quickly, particularly when energy markets are unsettled.
The Fed's next policy meeting will give officials a chance to respond to the latest data. Few analysts expect a dramatic shift, but the inflation readings will shape the tone of the discussion and the guidance offered to markets about the path ahead.
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