Wholesale inflation remained cool last month in latest sign that price pressures are slowing

WASHINGTON — Wholesale prices in the United States were unchanged last month, a sign that inflation is returning to something close to normal after years of putting pressure on American households in the wake of COVID-19.

The Labor Department reported Friday that the producer price index – which tracks inflation before it hits consumers – did not rise from August to September, after rising 0.2% the month before. Measured from a year earlier, the index rose 1.8% in September, the smallest increase since February, and down from an annual increase of 1.9% in August.

Excluding food and energy prices, which fluctuate from month to month, so-called core wholesale prices rose 0.2% from August and 2.8% from a year earlier, up from an increase of 2.6 % in the previous month.

Wholesale prices for services rose modestly, but were offset by a decline in commodity prices, including a 5.6% decline between August and September in the wholesale price of gasoline.

The wholesale inflation data arrived a day after the government said so consumer prices rose only 2.4% in September compared with 12 months earlier – the mildest annual increase since February 2021. That was barely above the Federal Reserve’s 2% target and well below inflation’s four-decade high of 9.1% in mid-2022. Still, with the presidential election less than a month away, many Americans remain dissatisfied with consumer prices, which remain well above levels before the 2021 wave of inflation began.

The steady decline in inflation could reduce former President Donald Trump’s political advantage over the economy. In some studies, Vice President Kamala Harris has done so aligned with Trump on the question of who can best handle the economy. Yet most voters still give the economy relatively poor marks, mainly because of cumulative price increases over the past three years.

The producer price index released Friday could provide an early look at where consumer inflation could be heading. Economists are also watching it because some of its components, especially health care and financial services, feed into the Fed’s preferred inflation gauge: the personal consumption expenditures (PCE index).

In a commentary, economist Paul Ashworth of Capital Economics wrote that Friday’s producer price report suggested September’s PCE inflation index would rise 0.2% from August, compared with a 0.1% increase the month before.

Ashworth noted that this would be “a bit hotter than we’ve seen in recent months” and added: “We still expect underlying price inflation to continue to moderate towards the Fed’s target early next year, but the risks to that view is no longer negative.”

Inflation began to rise in 2021 as the economy accelerated out of the pandemic recession with surprising speed, causing severe shortages of goods and labor. The Fed raised interest rates eleven times in 2022 and 2023 to a 23-year high. The resulting much higher borrowing costs were expected to push the United States into recession, but that did not happen. The economy continued to grow and employers continued to hire. And inflation has continued to slow.

Last month, the Fed all but declared victory over inflation, cutting its benchmark interest rate by an unusually steep half-percentage point, the first rate cut since March 2020, when the pandemic ravaged the economy. Two more rate cuts are expected this year and four in 2025.