Wholesale prices jump for third month in a row, but U.S. inflation still tepid


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U.S. wholesale prices fell sharply early in the coronavirus and still point


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The numbers: U.S. wholesale costs rose sharply in September for the third month in a row, but the recent upturn largely reflected prices returning to normal after the economy reopened and not a sustained increase in inflation.

The producer price index jumped 0.4% last month, the government said Wednesday. Economists polled by MarketWatch had predicted a 0.2% advance.

Most of the increase last month in wholesale prices was tied to a partial rebound in the cost of hotel and travel-related services after more people ventured out toward the end of the summer. Businesses were forced to slash prices last spring when lockdown orders and fear of catching the virus kept most customers away.

Inflation in the U.S. was still quite tepid. Wholesale inflation has risen just 0.4% in the past year, markinhg the first positive reading in six months. Typically wholesale prices start to rise before inflation filters into the broader economy.

The yearly rate had touched a seven-year high of 3.4% two summers ago.

Read: Biggest spike in used-car prices in 51 years nudges inflation higher

What happened: The cost of services rose 0.4% last month, mostly because of a nearly 4% increase in the price of hotel and related services. Prices also rose for transportation and warehousing services.

The cost of services are notoriously fickle, however, and often exaggerate the ups and downs in wholesale prices. Economists often discount big swings in service prices.

The wholesale cost of goods, however, also increased 0.4% in September. Food prices rose again, offsetting a smaller decline in the cost of energy.

What also boosted the cost of goods was a 14.7% surge in iron and scrap prices.

Another measure of wholesale costs known as core PPI also rose 0.4% last month. The 12-month rate moved up to 0.7% from 0.4%.

The big picture: Americans have witnessed large ups and downs in prices of many goods and services during the coronavirus pandemic. Most prices sank early on as households slashed spending and save more, but they rebounded during the summer as the economy began to grow again.

Yet while prices for some key staples have risen, inflation is still quite low and it’s likely to stay that way. Economists widely expect inflation to remain at 2% or less until the pandemic ends and economic growth returns close to precrisis levels.

Market reaction: The Dow Jones Industrial Average
DJIA,
+0.13%
and S&P 500
SPX,
+0.29%
rose in Wednesday trades.



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