Wholesale inflation rose in October to highest annual rate in nearly four years

(CNN) — High energy prices continue to ripple through US supply chains, raising the costs for businesses and setting the stage for further increases in the coming months for American consumers.

Wholesale inflation accelerated last month to its highest rate in nearly four years, Bureau of Labor Statistics data showed Friday.

The Producer Price Index, a measurement of average price changes received by producers and manufacturers, rose 0.3% from the month before and 6.5% for the 12 months ended in October, the highest annual rate since November 2022.

Excluding gas and food prices, core PPI rose 0.3% on a monthly basis and 5% annually, matching a rate last seen in January 2023.

The Iran war and the resulting energy supply shock have sent gas and diesel prices markedly higher in recent months.

Fuel prices didn’t rise as quickly last month as they did in September (when PPI rose at a breakneck rate of 1.4% to reach 6.3%); however, the past months’ surge, coupled with other more persistent price pressures, kept wholesale inflation quite elevated.

Notably, food prices climbed rapidly higher for the second consecutive month, rising 1.3% in October – the fastest monthly hike since July 2022 – after increasing 1.1% in September.

Within food, the largest price spikes were seen for produce products, which are primarily transported via truck. Freight transportation costs for the trucking industry are up nearly 25% from last year, BLS data shows.

Friday’s report showed that prices for wholesale fresh and dry vegetables jumped 26.7% in October, following a 30.7% leap in September.

The high diesel costs continue to flow to other categories, lifting costs for transportation, warehousing and key inputs like chemicals.

More price hikes could come in 2027

While PPI doesn’t translate directly to the Consumer Price Index, its trajectory and category-specific price hikes can serve as a potential bellwether for what consumers could experience in near future.

“We’ve seen a lot of pass-through already in places like airfares, where consumer prices have risen a lot,” Matt Bush, US economist at Guggenheim Investments, told CNN in an interview.

However, the higher transportation and input costs businesses are seeing now might not hit consumers for another six to eight months, he said.

“And it’s complicated by the fact that we also have some lingering tariff effects on a lot of these consumer goods prices,” he said.

As a result, consumers could be in store for further sticker shock early next year.

“That’s when the majority of businesses do their annual price resets,” he said. “In the case of the energy shock, there was an expectation that it could be short-lived; but given it’s gone on for several months now, I think as we head into the new year that you will see a lot of businesses deciding they need to pass on at least some of these costs.”

At the same time, the massive investment in artificial intelligence technology and equipment are contributing another layer of inflationary pressures both for businesses and consumers.

Electronic components and accessories, which rose at a six-month high pace of 4.2%, are up 31.7% from the year before, the highest annual rate on record, according to BLS data that goes back to December 1966.

“Those don’t pass through as directly into consumer prices; but indirectly, we are seeing it show up in computer prices, TV prices, software prices,” Bush said.

Friday’s PPI data, coupled with the hotter-than-expected October CPI released earlier this week, are expected to result in a rate hike from the Federal Reserve when policymakers meet in early December.

Markets are expecting a quarter-point hike; however, Fed Governor Christopher Waller indicated earlier this week that a half-point hike could be necessary.

The rate hikes might not end with December, said Ben Ayers, Nationwide senior economist.

“Lingering impacts from the spike in fuel prices could linger into 2027, warranting further tightening by the Fed to limit second and third order inflation impacts,” he wrote in a note Friday.