More Inflation Pain for Consumers Likely as Business Cost Gauge Soars

A shopper is seen past a sign displaying the price per pound of russet potatoes at a supermarket in Montebello, Calif., on Aug. 23, 2022. Frederic J. Brown/AFP via Getty Images

Inflation from the perspective of business costs—which tend to get passed along to consumers—soared in September, reversing the prior month’s decline and coming in twice as high as markets expected, pointing to a drawn-out Fed fight against high prices.

The Producer Price Index (PPI) jumped by 0.4 percent between August and September, according to data released on Oct. 12 by the Bureau of Labor Statistics (BLS).

Consensus forecasts called for a 0.2 percent pace of business cost inflation, with Wednesday’s data delivering an upside surprise.

“Not great news in the fight against inflation,” said Liz Young, head of investment strategy at SoFi, in a post on Twitter.

In August, producer price inflation fell by a revised 0.2 percent month-over-month. And in July, it fell by 0.4 percent, with the September reading suggesting an upward trend in inflationary pressures.

“Plain bad. Absolutely,” said Daniel Lacalle, chief economist at hedge fund Tressis in a statement on social media, commenting on the disappointing datapoint.

Economist Paul Krugman sought to find a silver lining to the cloudy numbers, taking to Twitter to say that over a quarter of the September jump in producer prices could be traced back to a 6.4-percent move up in prices for traveler accommodation services.

“All about the hotels?” Krugman quipped.

While the degree to which businesses pass along higher input costs to end users in the form of consumer price inflation has varied historically, CME Group said in a note that the PPI measure should be “seen as a good pre-indicator of inflationary pressures.”

In year-over-year terms, business cost inflation eased from 8.7 percent in August to 8.5 percent in September.

‘CPI Will Remain Elevated’

Following Wednesday’s PPI data, markets are now looking to Thursday’s release of consumer price inflation numbers.

Consensus forecasts are calling for consumer inflation to have increased to a month-over-month pace of 0.2 percent in September. If this prediction holds, this would signify an acceleration in inflation compared to August’s pace of 0.1 percent.

Forecasts for the year-over-year pace of the Consumer Price Index (CPI) gauge expect a slight slowdown from 8.3 percent in August to 8.1 percent in September.

Bankrate Senior Economic Analyst Mark Hamrick told The Epoch Times in an emailed statement that he expects retail inflation to stay high for the rest of the year.

“As the COVID pandemic has shifted to the background, inflation has become public enemy number-one,” Hamrick said.

“Awaiting the monthly update on prices at the retail level, it appears the year-over-year change in the CPI will remain elevated through the end of the year.”

Hamrick said consumers have seen some relief on the inflation front with the decline in gasoline prices, “but elevated food and shelter prices appear to be sticking around for a while as unwanted visitors.”

Besides imposing a cost-of-living squeeze on households, soaring inflation has also outpaced wage gains for many Americans.

“Purchasing power has gone up in smoke,” Hamrick said.

A recent report from the Dallas Fed showed that more than half of U.S. workers over the past year saw their real wages—which are adjusted for inflation—fall below zero. For the 53.4 percent of the American workforce whose wages were outpaced by inflation, the median wage decline was 8.6 percent.

Another stark statistic on Americans’ real wages was recently shared by San Francisco Federal Reserve chief Mary Daly, who said people are now “really struggling” and their “purchasing power is falling.”

“Some little-known statistic that I think is really worth bringing up, real wages, adjusted for inflation, the average worker in America has lost 9 percent over the course of the last two years,” Daly told the outlet.

“That’s not a good time to be a worker right now,” she added.