Wholesale Inflation Hits 6.3%, Fastest Since December 2022

Wholesale prices climbed 6.3% in September from a year ago, the Labor Department said Thursday — the biggest annual jump since December 2022 and a sharp acceleration from August's 5.6% reading.

The monthly number is even starker. The producer price index, which captures inflation before it reaches consumers, rose 1.3% from August to September. That's the largest one-month gain since March 2022, and it followed a 0.5% increase the month before.

The main culprit is fuel — specifically diesel.

What's driving the spike?

Diesel prices averaged $6.32 a gallon nationwide on Thursday, according to AAA, up from $3.66 a year ago. That matters because diesel powers the long-haul trucks and freight trains that move nearly everything: raw materials to factories, finished goods from producer to wholesaler to retailer.

Carl Weinberg, chief economist at High Frequency Economics, laid out the mechanism in a client note: "The jolt to transportation prices affects every good in the economy, since inputs to manufacturing move to factories and goods at all stages of production move from producer to wholesaler to retailer by truck, train or rail."

"This is how increases in energy prices 'bleed through' to prices of core goods," Weinberg wrote.

The data backs him up:

• Transportation and warehousing prices rose 3.4% in September and sit 16% above year-ago levels.
• Wholesale food prices jumped 1.2% just from August to September — a category that had appeared to cool this year, though it remains unchanged from a year ago.
• Wholesale gas prices soared more than 20% month over month.
• Electricity, vegetables, shipping and air fares all got more expensive too.

Farmers run most of their equipment on diesel, which adds another channel for energy costs to reach grocery prices. In short, diesel is now repricing the supply chain end to end.

What about core inflation?

Strip out the volatile food and energy categories, and the picture doesn't improve much. Core wholesale prices rose 0.7% from August to September, up sharply from 0.2% the previous month. Year over year, core prices climbed 5%, up from 4.6% in August.

That breadth matters. This isn't just an energy story anymore — the increases are spreading into the core goods basket that the Federal Reserve watches most closely.

What pressure does this put on the Fed?

Plenty. Thursday's report amplified the consumer price index released Wednesday, which also accelerated in September as gas prices jumped and a broad range of goods and services got more expensive.

Inflation has now stayed above the Fed's 2% target for five and a half years.

The Federal Reserve holds a policy meeting in two weeks and may keep its key short-term rate unchanged. But after two hot inflation reports this week, some economists now expect a hike instead. Officials have penciled in at least one more rate increase this year.

Fed Chairman Kevin Warsh speaks at an international economic conference in Bangkok late Thursday, and his remarks will be watched closely for any signal on whether he supports a rate hike this month.

Higher rates are the Fed's tool to slow borrowing and spending. They haven't worked as well as hoped this year: after a September rate hike, the U.S. reported Thursday that retail sales rose faster than expected that same month — though a chunk of that spending went to gas stations, where Americans are simply paying more to fill up.

What does it mean for consumers and politics?

Inflation keeps eroding paychecks. The Labor Department said Wednesday that, for the first time since May, average weekly paychecks adjusted for inflation shrank compared with the same month a year ago.

The political damage is measurable too. A poll released this month by The Associated Press-NORC Center for Public Affairs Research found that just 17% of U.S. adults approve of Trump's handling of the cost of living. Only 26% approve of his handling of the economy overall — a new low.

With midterm elections approaching, rising prices have become a growing political problem for Republicans. A 6.3% wholesale inflation print, driven by diesel that costs 73% more than a year ago, is the kind of number that travels straight from the pump to the ballot box.

The next signal comes from Warsh in Bangkok — and then from the Fed's meeting in two weeks, where a rate hike that once looked unlikely is back on the table.