U.S. wholesale prices show inflation is entrenched

Oct. 12 (UPI) -- Wednesday's reading of inflation at the wholesale level for the U.S. economy suggested the pressures building toward recession remain persistent.

The producer price index (PPI) is a gauge of the prices paid to U.S. producers for their goods and services and is used as a measure of wholesale inflation. The federal government reported the PPI increased 0.4% from August to September, about twice as high as expected.

Year-on-year, and the PPI is running hot at 8.5%. That's actually lower than the 11.7% reading from March, just weeks after the outbreak of the war in Ukraine, but still exceptionally high. The 12-month reading for PPI for September 2021 was 6.1%.

Prices in general had been supported by a spike in the cost of crude oil, natural gas and other commodities. Fears of a global recession had created headwinds for the price of most major commodities, though a recent decision from the Organization of the Petroleum Exporting Countries and their allies, a group known as OPEC+, to trim their production quotas come November could offset some of the recent relief.

Most major investment banks expect crude oil to trade above $100 per barrel in the coming months, up from current levels in the low-$90s.

The energy component of the PPI for July and August was actually negative, but showed a 0.7% increase from August levels last month, the U.S. Bureau of Labor Statistics reported.

Despite the attention given to OPEC+, the biggest increase in the PPI didn't come from energy. The price for foods showed a 1.2% increase from August to September, after coming in negative for last month's reading.

Leaving energy and food out of the equation due to their volatility, the situation looks to be improving somewhat. Without counting food and energy, the PPI over the 12-month period ending in September showed a 5.6% increase, the lowest reading of the year.

Escalating prices are nonetheless a top concern for U.S. President Joe Biden and his fellow Democrats in the weeks leading up to midterm elections in November. But it's also a concern for policymakers working to stave off a global recession through steady increases in lending rates, increases that would dampen demand and thereby inflation.

So far, however, inflationary strains have continued. Speaking Tuesday, Loretta Mester, the president of the Federal Reserve Bank of Cleveland, said inflation seems entrenched, contrary to early-year beliefs.

"Despite some moderation on the demand side of the economy and nascent signs of improvement in supply side conditions, there has been no progress on inflation," she said. "Inflation readings have persisted at the highest levels in 40 years."