US PPI inflation surges 1.3% as gasoline prices jump 20.3% - why are Treasury yields falling?

US wholesale prices rose much faster than expected in September as a sharp increase in gasoline costs pushed producer inflation to its biggest monthly gain since March 2022.

The Producer Price Index (PPI) which measures prices domestic producers receive for their goods and services, increased 1.3% from August. Economists surveyed by Reuters had expected 0.5% rise.

Producer prices were up 6.3% from a year earlier, compared with a 5.6% annual increase in August. The latest reading marked the largest year-over-year rise since December 2022, as per Reuters report.


Energy costs were a major reason for the increase. Gasoline prices jumped 20.3% during the month, while overall energy prices rose 10.8%. Services prices also increased at a faster pace, showing that the rise in wholesale inflation was not limited to fuel.

Gasoline Prices Push Producer Inflation Higher

Energy prices drove much of the increase in goods prices in September. Prices for final-demand goods rose 2.6%, their largest monthly increase since the government began tracking the series in December 2009.

Gasoline prices surged 20.3%, while diesel, jet fuel and residential electricity prices also rose. Overall energy prices increased 10.8%.

Food prices moved higher, too. Wholesale food prices climbed 1.2% after falling for three consecutive months.

The sharp rise in fuel costs played a significant role in pushing the overall PPI higher and contributed to the larger-than-expected monthly increase.

Services Prices Also Accelerate

The pressure extended beyond energy. Services prices rose 0.8% in September compared with 0.2% increase in August.

Higher trade service margins, freight transportation costs, hotel and motel prices and airfares contributed to the increase. Trade service margins alone rose 1.4%.

Not all categories recorded increases. Margins for automotive fuel and lubricant retailers fell 30.3%, while prices for securities brokerage services also declined.

The figures showed a broader increase in producer prices across goods and services, even as some individual categories moved in the opposite direction.

What September's PPI Figures Mean for Inflation

The latest report adds to the information policymakers use to assess inflation. Some components of the PPI feed into the Personal Consumption Expenditures (PCE) price index, the Federal Reserve's preferred measure of inflation.

Before the producer price report, economists' estimates for September core PCE inflation ranged from 0.3% to 0.4%, as per Reuters report.

The PPI increase was substantially higher than economists had expected. However, the report alone does not determine the Federal Reserve's next interest-rate decision.

Treasury Yields Fall Despite Higher Producer Prices

Treasury yields moved lower on Thursday despite stronger than expected inflation report, as per a Seeking Alpha report.

The 30 year Treasury yield fell 13 basis points to 5.39%, the 10 year yield declined 12 basis points to 5.06%. And the two year yield slipped 5 basis points to 4.75%.