Source item

Quoted context

These are the quoted author’s words.

The Most Disturbing Signals Buried in September’s Inflation Report September producer prices delivered another inflation shock. • Monthly PPI increased 1.3% • Annual PPI reached 6.3%, the fastest increase since December 2022 But these figures do not signal a strong economy. They expose an energy shock colliding with weakening pricing power and vulnerable businesses. Where the Inflation Is Coming From • Final demand goods increased 2.6%, the largest increase since the series began in 2009 • Energy surged 10.8% • Gasoline jumped 20.3% • Diesel increased 21.0% and is now 115.2% higher annually, having risen nearly 50% in August and September combined Diesel is embedded in agriculture, construction, trucking and distribution, making it an economywide cost shock. BLS index levels indicate direct energy contributed roughly 0.68 percentage point of the unrounded 1.34% headline increase, about half, before indirect costs in freight, manufacturing and services. • Services increased 0.8% • Trade margins rose 1.4% • Transportation and warehousing surged 3.4% • Other services increased just 0.3% Where The Weakness Is Appearing The most revealing contradiction is gasoline rising 20.3% while fuel retailing margins plunged 30.3%. Higher revenue can coexist with deteriorating profitability, especially when retailers cannot recover higher wholesale costs. • Construction inputs increased 2.0% • Energy inputs to construction producers jumped 18.5% • Final construction prices remained flat These are different pricing baskets, but the divergence suggests potential margin compression. • Plastic resins declined 1.0% • Softwood lumber fell 1.4% • Tires and selected business services also recorded price declines • Government purchase prices rose 10.6% annually, while government purchased goods increased 16.8% These developments reveal selective deflation alongside severe input inflation, increasing pressure on business profitability and public budgets. September retail sales exposed another distortion. • Nominal retail sales increased 0.8% • Gasoline stations accounted for approximately 71% of the dollar increase • The retail control group advanced just 0.14% before inflation Higher fuel spending is not stronger real consumption. Yet inflation outside energy remains elevated. • PPI excluding energy increased 0.7% monthly and 4.7% annually • PPI excluding food, energy and trade services increased 0.5% monthly and 5.0% annually Energy spillovers matter, but they cannot explain everything. The Larger Macroeconomic Problem Upstream pressures remain severe. • Unprocessed intermediate goods increased 8.4% • Processed intermediate goods rose 2.5% • Crude petroleum surged 28.3% • Unprocessed energy materials jumped 22.2% These increases can move through supply chains for months even if oil prices stabilize, forcing companies to pass on costs, absorb losses or cut activity. Restrictive interest rates compound the pressure through refinancing and investment. The Fed can suppress demand, but it cannot reopen shipping routes or restore refining capacity. Supply inflation can therefore coexist with falling output, weaker margins and rising defaults. That combination resembles the damaging supply shocks of the 1970s and the late cycle energy pressure seen in 2007. This is a warning that energy inflation may hold up the headline as real demand and profitability erode. Inflation could eventually fall because businesses cut production, investment and jobs, rather than because the economy recovered.

onechancefreedm ↗