Inflation Trends: PPI Explodes on Headline Number

The announced PPI headline of +0.8% was another indication that there is inflation cropping up and that is showing up in the form of margin compression. A good number of companies have been discussing the higher input costs as the are concerned that EPS may be affected.


Headline inflation in September surged at the producer level while the core rate nudged up. Producer prices jumped 0.8 percent in September, following no change in August. The September number was much higher than analysts’ projection forecast for a 0.3 percent boost. Turning to major components, energy rebounded 2.3 percent after falling 1.0 percent in August. Gasoline gained 4.2 percent, following a 1.0 percent decrease the prior month. Food costs slowed to a still warm 0.6 percent rise after surging 1.1 percent in August.

At the core level, PPI inflation posted a 0.2 percent rise, compared to a 0.1 percent increase in August. The median market forecast called for an increase of 0.1 percent. In September, one-third of the advance can be traced to prices for light motor trucks, which rose 0.6 percent.

For the overall PPI, the year-ago pace in September came in at 7.0 percent, compared to 6.5 percent in August (seasonally adjusted). The core rate in September held steady at 2.5 percent. On a not seasonally adjusted basis for September, the year-ago headline PPI was up 6.9 percent while the core was up 2.5 percent.

On the news, equity futures edged down. Treasury yields were little changed with traders still focusing on less robust GDP growth in China. The latest PPI data indicate that underlying inflation is not yet easing as soon as the Fed had hoped despite recent softness in commodities prices. This likely will heighten the internal Fed debate over the costs and benefits of additional easing.