Producer inflation jumped back into positive territory in September due to a robust increase in energy prices, while U.S. consumers showed signs of spending fatigue as retail sales growth came in weaker than expected, bolstering expectations for a Fed interest-rate cut next month.
The Producer Price Index (PPI) rose 0.3% month-over-month, matching economists' expectations and reversing August's 0.1% decline, according to a delayed release from the Bureau of Labor Statistics on Tuesday.
Year-over-year, overall producer inflation held steady at 2.7%.
Energy prices were the primary driver of the acceleration in producer costs, with gasoline prices soaring 11.8% month over month. Final demand goods surged 0.9%, the largest increase since February 2024. Food prices also jumped 1.1%, while goods excluding food and energy edged up just 0.2%.
Core PPI, which strips out food, energy, and trade services, rose a tepid 0.1% on the month, missing expectations of 0.2%. On a yearly basis, it remained elevated at 2.9%, above the consensus of 2.7%.
Services inflation, meanwhile, remained flat in September. A 4% jump in airline ticket prices and gains in transportation services were offset by a 3.5% drop in machinery and equipment wholesaling margins and declines in retail margins for autos, apparel and financial services.
Consumer Spending Shows Signs of Cooling
On the retail front, Americans pulled back more than expected. Retail sales rose 0.2% in September, down from August's 0.6% and below the 0.4% expected.
Excluding autos, sales increased 0.3%, decelerating from August’s 0.6% rise and below forecasts of 0.4%.
The retail control group—which feeds into GDP calculations—declined by 0.1%, missing expectations of a 0.3% gain and marking its first contraction since April.
Categories showing the strongest gains included miscellaneous store retailers, up 2.9%, and gasoline stations, up 2.0%. Weakness came from clothing accessory stores and nonstore retailers, both down 0.7% on the month.
Despite the monthly slowdown, annual retail sales growth remained strong at 4.3%, though that's a slowdown from August's 5% pace.
Market Reactions
Tuesday’s economic data failed to shift interest-rate expectations meaningfully, with futures markets still pricing in an 85% chance of a 25-basis-point rate cut at the Federal Reserve's Dec. 10 meeting, according to the CME FedWatch tool.
That probability has risen sharply in recent days, supported by increasingly dovish commentary from Fed officials.
On the equities front, Monday delivered the strongest session for tech stocks in over six months.
The Invesco QQQ Trust (NASDAQ:QQQ), which tracks the Nasdaq 100, jumped 2.6%, while the broader Vanguard S&P 500 ETF (NYSE:VOO) rose 1.5%.
U.S. index futures were flat in the premarket trading on Tuesday.
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