Hotter-than-expected producer prices raise concerns of further Fed rate hikes
A 1.3% rise in the producer price index, the strongest since March 2022, has led Wall Street economists to forecast higher core inflation and see a risk of another Federal Reserve rate increase in the coming weeks.
Wall Street analysts now expect the Federal Reserve’s preferred inflation gauge to rise faster than the level that prompted last month’s rate hike. The producer price index (PPI) posted a 1.3% month-over-month increase on Thursday, the biggest gain since March 2022 and more than double the 0.6% consensus forecast. The jump lifted the year-over-year PPI to 6.3%, the strongest rise since December 2022, driven largely by a 20% surge in gasoline prices. Excluding food, energy and trade services, prices still rose 0.5%, suggesting broader inflation pressures.
Seven Wall Street estimates gathered by CNBC project that core personal consumption expenditures (PCE) inflation for September will increase 0.32%, up from 0.25% in August. Economists used the consumer price index released Wednesday and the PPI to form these forecasts. > "We see real risks the Fed will deliver another rate hike in two weeks' time even as recent Fedspeak tempered expectations for back-to-back increases," wrote Kathy Bostjancic, chief economist at Nationwide.
While some Fed officials argue there is no urgency to raise rates, they acknowledge additional hikes may be needed. Fed futures on Thursday indicated a 29% chance of a rate increase at the meeting at the end of the month and a 91% probability of at least one hike by December. A 0.32% rise in PCE would lift the year-over-year core inflation rate to 3.1%, up from 3.01% in August, with forecasts ranging from 0.35% by Barclays to 0.29% by Oxford Economics.
"The picture is not benign with inflation elevated and intensifying," wrote Alex Pelle, senior U.S. economist at Mizuho Securities. "On the economic data alone, there is little reason for the Fed to hesitate to continue moving the policy rate higher."
Fed Chairman Kevin Warsh has suggested that a key test for pausing hikes is confidence that inflation will return to the 2% target in a timely manner. Both headline and core PCE inflation have remained above that target since 2021, edging higher after tariffs were introduced in April 2025 and accelerating since the start of the Iran war. The Fed prefers the PCE measure because it is believed to reflect consumer spending patterns more accurately than the CPI and is adjusted as those patterns change.