Wholesale Inflation Running Rampant: Highest Increase in Four Years Due to Iran War
Wholesale Inflation Running Rampant: Highest Increase in Four Years Due to Iran War
Record-high diesel prices are making it costlier to make and transport goods, squeezing household budgets
Today’s Producer Price Index (PPI) report shows wholesale prices rose 1.3% in September, the largest monthly increase since March 2022, and are up 6.3% over the past year, compared to 5.6% in August and the largest 12-month increase since December 2022. This marks the seventh consecutive month of wholesale inflation above 4%, the longest stretch since 2023. Core producer prices, excluding food, energy, and trade services, increased 0.7% in September and are up 5.0% over the past year.
September’s report captures the latest surge in oil and diesel prices from Trump’s war with Iran. Higher energy costs are making it more expensive for businesses to manufacture and transport goods, threatening continued price hikes for American families. The Federal Reserve’s latest Beige Book, released yesterday, found the same cost pressures, with businesses across the country reporting higher diesel prices and fuel surcharges, and expecting pass on these additional costs throughout the supply chain. Yesterday’s Consumer Price Index (CPI) report showed prices up 3.7% from a year ago, up from 3.4% in August, and core inflation increasing 0.33%, the largest monthly increase since April.
Groundwork’s Chief Economist Breyon Williams, released the following statement:
“Today’s PPI report shows a more than 10% spike in final demand energy, the highest jump since Trump first began his war with Iran. Elevated fuel prices mean companies are paying more to produce and transport goods, raising prices for nearly every product American families reach for in the grocery store or order online. As we head into the holiday season, Americans facing rising prices for everyday essentials are rightfully placing blame with the president who seems hellbent on making life less affordable.”
BACKGROUND
Trump’s war is driving up energy and transportation costs, threatening continued higher prices for families.
- Trump’s war is making energy more expensive for American businesses. Wholesale energy prices rose 10.8% in September and are up 35.4% over the past year. Wholesale diesel prices spiked 21% last month and have more than doubled from a year ago, up 115%. Trump’s answer to energy price hikes of his own making is to lift sanctions on Russian diesel through April 2027, a move widely considered ineffective at easing fuel prices.
- According to the Energy Information Administration, oil prices averaged $114 per barrel in September, up $23 from August, and Brent crude currently stands above $100 per barrel.
- Higher shipping costs threaten to push up prices at the grocery store and beyond. Truck freight prices were up 3.8% in September and 19.3% over the past year, the fastest pace since July 2022, following a 14.3% annual increase in August. With diesel prices around $6.30 per gallon, up 73% from a year ago, businesses face higher costs to transport food and other everyday goods. Grocery inputs are up 1.2% in September alone, and these pressures are working their way through the supply chain.
- Yesterday’s Consumer Price Index (CPI) report showed prices for many grocery staples are up, with staples like apples, tomatoes, and ground beef up from a year ago, and big price spikes in September for staples like lettuce, chicken, fresh fruits, and vegetables. With diesel prices remaining elevated, families could face further increases at the grocery store.
- The Federal Reserve’s Beige Book reported that business contacts across the country “noted that fuel surcharges were passing on increased costs throughout the supply chain.”
Trump’s tariffs and higher materials costs are putting additional pressure on businesses and consumers.
- Businesses continue to face higher costs for materials used to produce everyday goods. Wholesale steel mill product prices rose 27.6% over the past year, while aluminum mill shapes increased 25.2%. Prices for industrial chemicals, lumber, and plastic resins were up 13.8%, 8.7%, and 6.5%, respectively.
- Manufacturers reported that prices for raw materials rose for the 24th straight month in September, with more than half reporting higher prices, citing tariffs, according to the Institute of Supply Management’s September manufacturing PMI report.
- Small businesses are struggling with higher costs. The NFIB’s September survey found that 20% of small business owners named inflation their biggest concern, up from 16% in August and nearly three times the historical average. One Georgia retailer told the NFIB, “Fuel prices are killing us on our delivery trucks, as well as fuel surcharges on all freight coming into the store.”
- Businesses are passing higher costs along to customers. A contact from the Cleveland District noted in the Beige Book that “manufacturers continued to raise prices to cover higher costs associated with tariffs and for raw materials, particularly metals.” Consumers can expect higher prices in the future, as contacts reported that “they anticipated raising prices at upcoming renewals.” The Beige Book also warned of more price hikes ahead, with contacts across industries expecting to raise prices once their existing contracts expire.
