Labor Dept: Wholesale prices hit 6.5% annual rate in October

Wholesale inflation reached an annual rate of 6.5% in October, the highest level since November 2022, according to a report released Friday by the Labor Department.

The producer price index rose 0.3% from September to October. This monthly increase was lower than the 1.4% jump recorded in the prior month. However, the year-over-year figure climbed from 6.3% in September. A year ago, wholesale inflation stood at 3.1%.

The data indicates that prices are rising well above the Federal Reserve's 2% annual target. This trend follows a Tuesday report showing that the consumer price index also accelerated in October. Many Federal Reserve officials have indicated that they will likely raise their key short-term interest rate further, potentially more than once, to combat these pressures.

Excluding volatile food and energy categories, core wholesale prices rose 0.3% month-over-month. This is down from a 0.7% increase in September. On a yearly basis, core prices rose 5%, matching the September rate.

Energy prices leveled off, contributing to the monthly cooling. Yet, high fuel costs continue to spread into other sectors. Truck freight prices jumped 3.9% in October, and food prices rose 1.3%. Wholesale diesel prices fell 7.9% from September to October, but the impact of higher costs since the Iran war remained visible in shipping rates.

The buildout of artificial intelligence data centers is also influencing costs. Electronic component prices soared 4.2% last month, and industrial chemical prices rose 3.1%. Ben Ayers, a senior economist at Nationwide, noted that food and transportation costs climbed sharply as high fuel prices flowed into other parts of the economy. He wrote that this creates further upward pressure for food and broader goods inflation even as oil prices have cooled over the past few weeks.

Economists at Morgan Stanley estimate that core inflation, as measured by the personal consumption expenditures price index, will rise to 3.2% from 3.1% on a yearly basis when that report is released later this month. This acceleration would likely intensify concerns at the Federal Reserve regarding the need for additional interest rate hikes.