US producer prices rose at the fastest pace in three months in August amid higher fuel costs, with Oxford Economics predicting further upward pressure on wholesale costs as domestic diesel prices hit fresh peaks.
The producer price index increased 0.4% on a seasonally adjusted basis month over month, the highest growth rate since May, Bureau of Labor Statistics data showed Thursday. The latest print matched the projected gain in a survey compiled by Bloomberg and marked an acceleration from a 0.1% rise in July.
Wholesale goods prices turned positive, at 1.1%, driven by a 4.2% jump in the energy index. Within energy, diesel fuel surged about 24%, home heating oil and distillates soared nearly 23%, and jet fuel climbed approximately 21%. Food prices edged up 0.1% following a 0.9% decline in July.
"Based on the timing of the PPI survey, we expect another rise in September's report, as diesel prices have climbed nearly 60 cents and gasoline prices have risen close to 20 cents during the survey window, which is in the middle of the month," Grace Zwemmer, US economist at Oxford Economics, said in a note e-mailed to.
US crude oil prices surged past $100 per barrel on Thursday, a day after global benchmark Brent breached the same threshold, amid intensifying tensions between the US and Iran that have sparked fears of prolonged supply disruptions.
The average diesel price in the US hit a fresh record high at $5.9773 per gallon on Thursday, up from $5.9424 the day before, according to data from AAA, a travel organization that tracks fuel prices in the world's biggest economy. The regular gas average price rose to $4.2770 per gallon from $4.2245.
Prices of final demand services ticked up 0.1% following a 0.2% gain in July, the BLS data showed.
On an unadjusted basis, the producer price index climbed 5.4% from a year earlier, compared with a 4.8% gain in July, while Wall Street expected a 5.3% gain for August.
Markets are now pricing in a 70% probability that the Federal Reserve will raise the benchmark lending rate by 25 basis points at next week's policy meeting, up from 61% on Wednesday, according to the CME FedWatch tool. The remaining odds point to another Fed pause.
Zwemmer expects the Fed to stay put on Sept. 16, citing his expectations for "another benign" personal consumption expenditure inflation reading.
"Barring a surprise in the (August consumer price index) number on Friday, we expect the economic data to support the case for a hold at next week's Federal Open Market Committee meeting," Zwemmer said.
