Inflation, as measured by the producer price index, rose two-tenths of a percentage point to 6.5% for the year ending in October, the Bureau of Labor Statistics reported Friday.
Economists have been closely watching PPI reports and other inflation data amid the war with Iran and concerns that higher energy prices will filter through to overall inflation.
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Economic forecasters had expected that the PPI would rise to 6.6%.
On a month-to-month basis, the price index rose 0.3%.
Core PPI inflation, which strips out volatile food and energy prices, remained at 5% on an annual basis. Core inflation was 0.3% on a monthly basis.
“It is economics 101 that producer prices lead consumer prices and right now it looks like consumers will be on the hook for a fresh burst of factory inflation,” said Chris Rupkey, chief economist at FWDBONDS. “Everywhere you look inflation is pushing forward and making the affordability crisis for Americans that much harder.”
The latest inflation numbers come just days after the government released the country’s most closely watched inflation report, the consumer price index.
In that report, prices posted a sharp 0.4% monthly increase. Because of the government shutdown last October, the BLS did not publish how much inflation increased on a 12-month basis.
The back-to-back inflation reports come a week after the midterm elections, which saw Democrats regain control of the House and the Senate, in large part due to voter discontent with inflation and affordability.
Democrats won at least 55 Senate seats and 255 House seats. Many of them ran on lowering prices for consumers, the same message that President Donald Trump successfully ran on in 2024. Numerous surveys heading into the election showed that many voters blamed Trump for the recent rise in prices and for not returning inflation to healthy levels.
The war with Iran has been the biggest impediment to the Federal Reserve’s fight against inflation. Gasoline prices have soared since the conflict began, with gas prices now averaging about $3.90 per gallon, a 27% increase from this time last year.
The Fed’s target is 2% inflation gauged on an annual basis. Prior to the war, annual consumer price index inflation had dropped as low as 2.4% in January.
In September, the Fed, led by Trump’s pick for chairman, Kevin Warsh, raised interest rates for the first time in defiance of the president’s wishes. The Fed raised its interest rate target by 0.25 percentage points to a range of 3.75% to 4%, a move that was done to help drive down price growth.
But at its most recent meeting, less than a week before the midterm elections, Warsh and the Fed voted to hold interest rates steady.
Investors think it’s a near certainty that the Fed will hike rates one more time by the end of the year when it next meets in early December, but the question has become whether the central bank will do a typical quarter percentage point hike, or raise rates by an even bigger half percentage point.
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Also, the labor market is giving the Fed a little wiggle room to hike. The most recent jobs report showed that the economy added 165,000 new payroll jobs in October and the unemployment rate fell to a historically low 4.1%.
That is far more jobs than most economists had anticipated. Gross domestic product, a broad measure of economic output, has also continued to expand.
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[ H/T Washington Examiner ]
