Wall Street economists are warning that the Federal Reserve’s fight against inflation is far from over after a hotter-than-expected producer price index reading.
The PPI came in at 1.3% in September, the biggest monthly gain since March 2022 and more than double the 0.6% consensus forecast.
That pushed the year-over-year increase to 6.3%, the largest jump since December 2022, with gasoline prices surging 20% leading the charge.
Even stripping out food, energy and trade services, prices still rose a solid 0.5%, signalling that inflationary pressures remain broad-based and persistent.
Seven Wall Street estimates gathered by CNBC now forecast core personal consumption expenditures inflation for September to rise 0.32%, up from 0.25% in August.
A 0.32% monthly increase would push the year-over-year core PCE inflation rate to 3.1%, climbing from 3.01% recorded in August, deepening concerns at the central bank.
Estimates from major institutions ranged from a high of 0.35% from Barclays to a low of 0.29% from Oxford Economics, all pointing in the same upward direction.
“We see real risks the Fed will deliver another rate hike in two weeks’ time even as recent Fedspeak tempered expectations for back-to-back increases,” wrote Kathy Bostjancic, chief economist at Nationwide.
Fed futures on Thursday reflected just a 29% probability of a hike at the end of this month, though a 91% probability of at least one hike by December was priced in.
“The picture is not benign with inflation elevated and intensifying,” wrote Alex Pelle, senior U.S. economist at Mizuho Securities, adding that there is “little reason for the Fed to hesitate to continue moving the policy rate higher.”
Fed Chairman Kevin Warsh has previously indicated that one key test for pausing rate hikes is confidence that inflation will return in a timely manner to the Fed’s 2% target.
Both headline and core PCE inflation have remained above that target since 2021, inching steadily higher following the introduction of tariffs in April 2025.
Inflationary gains have further accelerated since the beginning of the Iran war, adding additional upward pressure to an already strained economic environment.
The Federal Reserve favours the PCE measure over the CPI because it more closely reflects actual American spending habits and adjusts its weightings as consumer behaviour shifts.