Producer Prices Up as Energy Costs Soar

Producer prices shot up by an unexpectedly large 1.9% last month, the biggest gain in more than 15 years, as energy costs surged in the wake of hurricanes that devastated the Gulf Coast, a government report showed Tuesday.

Outside of volatile food and energy costs, prices received by farms, factories and refineries rose 0.3%, the Labor Department said. Although subdued relative to the overall gain, the core price reading was firmer than Wall Street expected.

Wall Street economists had expected producer prices to rise just 1.1%, with prices outside of food and energy up a tame 0.2%.

Analysts were divided on the degree to which the higher costs producers face from energy prices would feed through to the prices consumers pay.

Energy prices at the producer level soared 7.1% in September, the biggest jump since October 1990, while food prices gained 1.4%, the largest rise in nearly a year.

“The real question is whether companies will squeeze their [profit] margins as costs increase or if they are going to increase prices,” said Michael Metz, chief investment strategist at Oppenheimer Holdings Inc. in New York. “I think they will increase prices.”

Federal Reserve officials, who have raised overnight borrowing costs from a low of 1% to 3.75% in 11 straight quarter-point increases, are expected to bump rates up again when they meet in two weeks, in an effort to ensure sharp energy price gains do not lead to more broad-based inflation.

Continuing the tough talk that has characterized Fed officials’ recent comments, San Francisco Fed President Janet Yellen said in a speech Tuesday, “One option that clearly is not on the table is allowing an unacceptable rise in inflation.”

Over the last year, producer prices have increased a hefty 6.9% on the back of rising energy costs, the biggest 12-month gain since November 1990. In contrast, so-called core prices have gained 2.6%.

Consumer prices also have jumped. They posted a 4.7% gain in the 12 months through September, the biggest jump since 1991. But core retail prices are up just 2%.

Mounting energy costs have been the main inflation culprit.

Gasoline prices at the producer level increased 12.7% last month, natural gas costs climbed 9%, liquefied petroleum gas prices soared 24.7% and home heating oil prices rose 4.8%, the department said.

Prices for cars rose 0.9% in September and prices for light trucks and SUVs gained 0.5% as automakers wound down special sales incentives.