Inflation in the pipeline

There are signs that inflationary pressures could be building in the U.S. economy, as the cost of gas and food rose for companies in September, according to the latest data from the U.S. Labour Department.

These two volatile components of the producer price index drove wholesale prices up by the most in five months. The PPI jumped 0.8% in September. Excluding food and energy, the core index increased 0.2%.

Wholesale energy prices jumped 2.3%, the most since March. That followed three months of declines. Gas prices dropped toward the end of September, though too late to affect that month’s data, according to economists at IHS Global Insight.

Higher prices for pickup trucks, meanwhile, accounted for one-third of the increase in the core index.

Meanwhile wholesale food prices rose 0.6%.

Peter Newland, a senior economist at Barclays Capital, says the 0.8% increase was “well above” his forecast of 0.3%, while the consensus estimate was just 0.2%.

“Signs of building price pressures more generally among consumer-related items was again evident,” he wrote in a research note.

He went on to point out that these higher costs of doing business will inevitably be passed on to consumers.

“Today’s report supports our view that core consumer price inflation will continue to trend higher,” he wrote. “We continue to look for a 0.2% rise in the core CPI (and an above-consensus 0.4% rise in the headline CPI) in tomorrow’s September report.”

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Nigel Gault, chief U.S. economist at IHS Global Insight suggests that inflationary fears are probably overblown, however, as the U.S. economy continues to struggle.

“We anticipate that slower global growth will mean that inflation will ease in coming months,” he wrote in a research note. “But there’s no sign of the deflationary pressures that the Fed was worried about a year ago – so the hurdle for further quantitative easing (in terms of how weak the economy would have to be to justify it) is higher now than it was then.”