Hurricanes Katrina and Rita was a big reason the wholesale prices jumped by 1.9 percent. That may not seem like much, but consider that in September gasoline prices were up 17.9%, the highest one-month increase in 25 years. Along with that, food prices had their highest increase in 11 months.
Here’s more from the AP:
While the core rate of inflation at the consumer level was well-behaved, rising by a tiny 0.1 percent, the worry is that the sizable increases in energy will soon begin to spill over into more widespread inflation pressures.
A number of Federal Reserve officials in recent weeks have expressed such concerns. In a speech in Tokyo on Tuesday, Federal Reserve Chairman Alan Greenspan said the jump in energy prices “will undoubtedly be a drag from now on.”
Greenspan did not quantify how much of a slowdown will occur, but private economists are forecasting that the hit from Katrina and Rita could shave as much as a full percentage point from economic growth in the final six months of this year.
And still more from Reuters:
“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.”
Fed officials, who have raised overnight borrowing costs from a 1958 low of 1 percent to 3.75 percent in 11 straight quarter-point steps, are widely expected to bump rates up again when they meet in two weeks in an effort to ensure sharp energy price gains do not feed into more broad-based inflation.
Over the past year, producer prices have increased a hefty 6.9 percent on the back of rising energy costs, the biggest 12-month gain since the period ended November 1990. In contrast, so-called core prices have gained just 2.6 percent.