What a mostly flat PPI can tell us about where the economy is

The producer price index, which measures inflation at the wholesale level, is in for September. Core inflation rose higher than analysts expected, because the price increase for services went up 0.2% from August, and goods went down 0.2%.

These aren’t giant numbers, so economists aren’t sounding alarm bells. But averages can sometimes mask the more notable trends.

Looking at the aggregate numbers, Matthew Martin, senior U.S. economist at Oxford Economics, is feeling optimistic. He said the fact that final demand was pretty much flat, “really tells a story of a really stable economic environment, which is, at the end of the day, what the Fed’s looking for.”

But there are two big pieces in this report: goods and services. Martin said the rising price of goods has stabilized and landed right about where it should be. Service price increases are taking a little longer to get there.

“Core goods is running at 2%, core services is running at 4%, so, services in general have been the really sticky side of things,” he said.

Martin said the Federal Reserve wants to see the services number come down. And the fact that services is the number that increased isn’t a step in the right direction.

“And it’s actually rising faster than it was in September, October of 2023,” said Daniel Lacalle, chief economist with the investment bank Tressis. “The services indicators show a very hot and probably hotter economy than one would like.”

The other big drag on the index is the recent plummet in energy prices — specifically gasoline and diesel.

Chief Economist Ken Simonson of the Associated General Contractors of America said that dip is making construction appear more affordable, even though copper and lumber prices increased last month.

“So I don’t want to give the picture that everything is calm or declining in price,” he said.

These numbers are also from a month ago, Simonson said, and a lot has happened since then.

“We’ve had some pretty dramatic things that potentially could affect costs: two hurricanes and a brief dock strike,” he said.

But he also said these prices are still just the ones that producers are paying. And he’s hopeful that the dips and peaks are small enough this month that they won’t be all that noticeable for consumers, at least in the short term.