Perc Pineda, PhD
Chief Economist, Plastics Industry Association
Headline Inflation Accelerates on Rising Energy Prices
Headline inflation, as measured by the year-over-year change in the Consumer Price Index (CPI), rose to 3.7 percent in September, up from 3.4 percent in August. Core inflation, which excludes food and energy prices, also edged up to 2.6 percent from 2.4 percent. The widening gap between headline and core inflation suggests that rising energy prices, driven primarily by the geopolitical conflict involving Iran, contributed to the acceleration in overall inflation. Since February, headline inflation has risen more sharply than core inflation, reaching 4.2 percent in May, compared with a peak of 2.8 percent for core inflation that same month.
Consumer Prices Show Diverging Trends Across Categories
Food prices were unchanged in September but rose 2.5 percent year over year (YoY). Energy prices increased 5.2 percent from August and climbed 20.4 percent YoY, with gasoline and fuel oil prices rising 34.2 percent and 74.2 percent, respectively. New vehicle prices edged up 0.2 percent from August to September and 0.6 percent YoY. Meanwhile, prices for medical care commodities fell 3.3 percent YoY, while prices for medical care services increased 2.5 percent.
These trends underscore the varied inflationary pressures facing consumers across the economy. Plastics play an important role in products ranging from food packaging and vehicles to medical products and equipment. Their cost-effectiveness and performance can help manufacturers manage production costs while maintaining product affordability.
Meanwhile, average hourly earnings for all private-sector employees increased 3.0 percent YoY in September, down from 3.8 percent a year earlier, according to the Bureau of Labor Statistics (BLS).
Plastics Producer Prices Ease in September but Remain Higher Year Over Year
The Producer Price Index (PPI) for plastic bottle manufacturing recorded its sharpest monthly increase in June, rising 2.3 percent, while the index for plastic material and resin manufacturing recorded an 11.1 percent increase in May. In September, both indexes declined month over month, falling 0.6 percent for plastic bottle manufacturing and 1.6 percent for plastic material and resin manufacturing. Despite these monthly declines, the indexes remained higher year over year, increasing 6.4 percent and 5.9 percent, respectively.
Persistent Inflation Keeps the Federal Reserve on Guard
The Federal Reserve raised the federal funds rate by 25 basis points to 3.75–4.00 percent on September 16. Elevated inflation amid above-trend economic growth and a labor market near full employment remains, a concern for the Fed. So far, there is little evidence of a wage-price spiral in the U.S. economy, in which rising wages lead to higher prices, prompting workers to seek further wage increases and putting additional upward pressure on prices. Although the Federal Reserve remains focused on inflation, financial markets expect the Fed to hold rates steady at its October 27–28 meeting and raise them again in December. According to CME Group’s FedWatch Tool, markets assigned a 90.6 percent probability to the federal funds rate remaining at 3.75–4.00 percent following the October meeting, while the probability of a rate increase to 4.00–4.25 percent at the December meeting stood at 73.8 percent.
Outlook: Energy Costs and Inflation Remain Key Variables
The September data point to renewed inflationary pressure, driven largely by energy prices, even as price movements across other consumer categories remain mixed. For plastics manufacturers, higher energy costs may add to operating and transportation expenses, while year-over-year increases in producer prices for plastic bottles and plastic materials and resins indicate that cost pressures have not fully subsided. Although financial markets do not anticipate another Federal Reserve rate hike at the October meeting, persistent inflation could keep monetary policy restrictive. The trajectory of energy prices, producer costs and interest rates will therefore remain important factors shaping the outlook for the plastics industry.
