U.S. producer prices rose 0.3% in October, below the 0.4% economists expected, but the annual increase accelerated to 6.5% from 6.3% in September—the highest rate since November 2022.

The producer price index tracks what businesses charge for goods and services, offering a signal of cost pressures that may eventually reach consumers, though it does not translate directly into consumer inflation.

Goods prices climbed 0.5%, with food and basic organic chemicals rising even as diesel fuel declined, while services prices increased 0.2% for a fifth straight month, largely on higher transportation and warehousing costs.

Energy costs remain a pressure point: diesel was $6.06 a gallon, about 61% above a year earlier, adding to transportation and grocery supply costs.

The Iran war and resulting energy supply shock have contributed to elevated producer costs, while policymakers are watching whether fuel costs and tariffs are spreading inflation across the economy.

Chicago Fed President Austan Goolsbee said inflation remained broad-based and progress toward the target had stalled, including in categories not directly driven by oil prices or tariffs.

The AI data-center buildout also showed up in industrial costs, with electronic-component prices rising 4.2% and industrial chemical prices increasing 3.1% in October.

Higher interest rates could make costly, debt-financed AI data-center projects harder to justify, even for cash-rich companies such as Meta Platforms and Alphabet; the S&P 500 is heavily concentrated in AI-related stocks.

Some Federal Reserve officials have signaled that further increases in the key short-term interest rate may be needed to curb inflation, a move that can raise borrowing costs for mortgages, auto loans and credit cards.

Chris Zaccarelli of Northlight Asset Management said the report showed some improvement but inflation remained too high, making a change to the Fed’s December approach unlikely given consumer inflation was already outside its comfort zone.

Two-year Treasury yields edged down after the report but remained on track for their worst week since 2024; yields generally move inversely to bond prices.

The next key inflation release before the Fed’s December meeting is due November 25, when the Personal Consumption Expenditures price index, the Fed’s preferred gauge, will be published.