Surge in food costs sends wholesale prices up 0.4%

WASHINGTON — U.S. wholesale prices jumped 0.4% in September as food costs rose by the largest amount since May.

The Labor Department said Wednesday that the September increase in its producer price index, which measures inflation before it reaches the consumer, followed a 0.3% rise in August and a 0.6% surge in July which had been the biggest monthly gain since late 2018.

The 0.4% September rise was bigger than economists had been expecting and reflected in part a 1.2% increase in food costs, the sharpest rise since a 5.6% spike in

May, as coronavirus-related shutdowns at food processing plants triggered shortages.

For September energy prices fell for a second month, dropping 0.3% after a 0.1% dip in August.

The increase in food costs reflected higher prices for corn, fresh vegetables and beef

The government reported Tuesday that inflation at the retail level was up 0.2% in September, just half the August gain, even though the price of used cars jumped by the largest amount in more than a half-century.

Producer prices excluding food, energy, and trade services — a measure preferred by economists because it strips out the most volatile components — jumped 0.4%, the most since April 2019.

Over the past 12 months, inflation at the wholesale level is up 0.4% while core inflation is up 1.2%.

While the September rise in wholesale prices was bigger than expected, economists said the trend over the past year shows that inflation remains subdued, far below the Federal Reserve’s 2% target for annual interest rate increases.

“Inflation has accelerated from a resumption in activity. For now, the trend remains muted, driven by weak demand and ample excess capacity,” Rubeela Farooqi, chief U.S. economist for High Frequency Economics, said in a research note.

Fed policy makers a re determined to push inflation hi g her, a nd have signaled they expect to hold interest rates near zero at. least through 2023 to help achieve that goal. The U.S. central bank targets 2% inflation, measured by the Commerce Department’s personal consumption expenditures price index. That gauge has been almost continually below that goal since 2012.

Fed Chairman Jerome Powell said in late August that the central bank will now aim to achieve 2% inflation on average over time and will tolerate periods when price pressures moderately overshoot that level. That means it will be slower to raise rates in response to declining unemployment than in the past.

“Inflation has accelerated from a resumption in activity. For now, the trend remains muted, driven by weak demand and ample excess capacity.”

— Rubeela Farooqi