The PPI Was Much Higher Than Expected. Odds of a Fed Rate Hike Edged Down Anyway.

Odds of a rate hike by the Federal Reserve edged down on Thursday even though the Producer Price Index soared beyond economists' expectations, figures show.

Chances of a rate hike now stand below 30%, almost four percentage points less than on Wednesday, according to the CME Group's FedWatch tool. Odds that the central bank will keep rates unchanged stand at 70.7% at 9:47 a.m. ET.

The producer price index clocked in at 1.3% last month and 6.3% on an annual basis. It was the largest 12-month increase since 2022. Economists expected for the monthly figure to stand at 0.6% and the annual one at 5.5%.

Soaring energy prices resulting from the war are playing an outsized role in the figure. Without food, energy and trade, the monthly PPI was 0.5% and the annual one 5%, according to the Bureau of Labor Statistics.

"Half of the September increase in the index for final demand goods can be traced to
prices for gasoline, which jumped 20.3 percent. The indexes for diesel fuel, fresh and dry vegetables, jet fuel, residential electric power, and crude petroleum also rose. In contrast, prices for chicken eggs dropped 39.7 percent. The indexes for thermoplastic resins and materials and for commercial electric power also declined," the report noted.

The figure comes a day after consumer prices also rose above expectations, increasing 0.6% compared to the previous month.

The Bureau of Labor Statistics noted that the annual figure stood at 3.7%, compared to the 3.6% expected by analysts.

More than half of the increase was explained by gas prices, which rose more than 9% last month.

"The energy index increased 5.2 percent over the month following a 2.1-percent increase in August. The shelter index rose 0.4 percent in September after rising 0.3 percent in August. The index for food was unchanged in September, as the index for food away from home increased 0.2 percent and the index for food at home fell 0.1 percent," BLS detailed.

New ​York Federal Reserve President John Williams had reiterated on Tuesday his view that the central bank should hike rates once more this year and leave them unchanged next year, at least considering the scenario before the latest figures.

"I don't think at this time I have any reason to believe that we would need to do ​more," Williams added in an interview with Bloomberg News. "it's still mid-October. This economy is being affected by lots of different ​influences, and we just have to keep watching the data."