US Wholesale Inflation Hits 6.5% in October, Fastest in Four Years

Wholesale inflation in the United States accelerated to its fastest pace in almost four years in October, fresh official data showed on Friday, keeping the pressure on the Federal Reserve even as the monthly increase came in slightly below forecasts.

The producer price index (PPI), which tracks the prices businesses receive for their goods and services, rose 0.3 per cent from September, the Bureau of Labor Statistics reported. That was below the 0.4 per cent rise economists had expected, and it briefly lifted stocks in early trading.

But the annual figure told a different story. Wholesale prices climbed 6.5 per cent over the 12 months to October, the largest year-on-year increase since November 2022, as cost pressures that had been building through the autumn continued to feed through the supply chain.

What the numbers show

The details of the report pointed to broad-based pressure rather than a single cause. Core PPI, which strips out volatile food and energy prices, also rose 0.3 per cent on the month and was up 5.0 per cent on the year, unchanged from the previous month’s annual pace.

The figures landed in a week already dominated by questions about inflation. Consumer prices remain stubbornly high at well above 3 per cent, and the wholesale data suggest those pressures are not fading quickly at the factory gate or in the service sector.

For households, wholesale inflation matters because it often shows up later on shop shelves. When businesses pay more for raw materials, transport and services, they typically pass at least some of those costs on to consumers, with a lag of several months.

The figures came in the same month the government posted a record $404 billion October budget deficit, underlining the scale of the fiscal challenge.

Tech shares lead the slide

Wall Street gave the report a mixed reception. The Dow Jones Industrial Average rose 0.10 per cent to close at 52,347.55, but the S&P 500 fell 0.40 per cent to 7,561.67 and the Nasdaq Composite dropped 0.91 per cent to 25,136.27. All three major indexes still finished the week higher.

Technology shares bore the brunt of the selling. Nvidia fell about 2 per cent, extending a slide that began when chief executive Jensen Huang resigned on Thursday after 33 years at the chipmaker. Advanced Micro Devices dropped 8.75 per cent to $534.06, and Broadcom fell 6.5 per cent. The Philadelphia Semiconductor Index fell 3.43 per cent to 10,146.32, with all 30 of its constituents declining.

The Nasdaq’s fall and Nvidia’s drop were reported widely, according to TradingKey, while the Associated Press reported on the wider impact on global AI development.

The 10-year Treasury yield pushed to 4.98 per cent, a level that raises borrowing costs across the economy, from mortgages to corporate debt. The yield has climbed steadily this week as traders have reassessed how soon the Fed might be able to cut rates.

What it means for the Fed

The report sharpened the debate inside the Federal Reserve about the path of interest rates. The central bank’s benchmark rate currently stands at 3.75 to 4.00 per cent, and traders are now fully pricing in a rate rise at the Fed’s December meeting, according to CME FedWatch.

Chicago Fed President Austan Goolsbee said on Friday that inflation trends were “concerning” and that the Fed still had substantial work to do to bring prices back to its 2 per cent target and maintain public confidence in its ability to control inflation. He warned that price pressures were no longer confined to energy and tariffs, pointing to strong demand from the construction of artificial intelligence data centres, which is pushing up costs for power equipment, chips and construction.

Treasury Secretary Scott Bessent struck a more cautious note in an interview with CNBC, saying the Fed should keep an open mind and assess the energy supply shock triggered by the war in Iran carefully, rather than sharply reversing interest rate policy on that factor alone. He added that he would not instruct the Fed on its decisions, but that policymaking should be forward-looking.

The split in tone reflects the dilemma facing policymakers. Inflation is running hot, which would normally argue for tighter policy, but much of the latest pressure stems from energy disruption and a war-related supply shock, which higher rates cannot fix.

Higher borrowing costs are already biting elsewhere in the economy: US home sales fell to a 16-year low in October as mortgage rates stayed elevated.

What to watch next

Investors will get more clues in the coming days. Nvidia reports quarterly results on Tuesday, its first under interim chief executive Colette Kress, and the figures will be watched closely for signs of whether demand for AI chips is holding up. Fresh retail sales data and a speech from Fed Chair Warsh are also on the calendar.

The October PPI report does not settle the argument over rates, but it does make one thing clear: wholesale inflation is still running far above the Fed’s comfort zone, and the path back to 2 per cent is likely to be slower than markets had hoped.