Optencis
Energy was the common thread of the week of 12 October. US producer prices rose 1.3% in September, more than twice what economists expected, while Bank of England Governor Andrew Bailey said Middle East energy shocks have pushed back the 2% inflation goal. Late in the week, US President Trump named a specific Iranian site as a possible strike target, adding to tension in the region.
US producer prices surge in September
The producer price index (PPI), which tracks the prices businesses charge for their goods and services, climbed 1.3% month on month in September. Economists had pencilled in a rise of 0.6%, so the actual figure came in at more than twice the consensus. It was the largest monthly increase since March 2022, and producer inflation on an annual basis reached 6.3%. According to Reuters and Bloomberg, higher energy costs were the main force behind the jump. Even so, markets do not see the US Federal Reserve (Fed) raising its policy rate, the interest rate it sets, at its next meeting despite the strong reading.
Bailey: energy shock pushes back the 2% goal
At the Bank of England (BoE), Governor Bailey spoke on 16 October and said energy shocks linked to the Middle East have taken interest rate cuts off the table. In his view, the shock has already tightened financial conditions, meaning borrowing has become harder in practice even though the BoE has not raised rates. He also asked markets not to draw conclusions about the next policy decision, because officials still need to assess how far higher energy costs spread into other prices.
- 1Middle East energy shockEnergy supply worries lift costs
- 2Higher energy costsMain driver of producer prices
- 3Producer prices jumpUS PPI up 1.3% in September
- 4Rate cuts delayedBoE sees cuts off the table
He argued that the energy shock has tightened financial conditions on its own, but warned against reading his comments as a signal for the next rate decision.
Views reported by the sources, not Optencis opinions.
Iran strike remarks add to Middle East tension
Trump said a US strike on Iran's Pickaxe Mountain site might become necessary, both Bloomberg and Reuters reported. The comment named a precise target, going further than his earlier, more general remarks. No timing was given and no action has been confirmed. Traders tend to watch this kind of escalation signal closely because it can affect oil prices and appetite for riskier assets such as stocks.
Read alsoBank of England preview: Bank Rate forecast at 4.00%, up from 3.75%A busy calendar for the US dollar
The week also carried several high-impact releases: US consumer prices on 14 October, US retail sales and producer prices on 15 October, UK monthly GDP and Australian employment figures on 15 October, and a speech by Fed Chairman Warsh on 16 October at 03:30 UTC. Among these, the producer price report stood out in our sources as the main surprise of the week.
What comes next
The energy story links all three of the week's main events, so oil prices and news from the Middle East remain central for traders. The next steps from the Fed and the BoE will depend on how higher energy costs feed into wider inflation. Our Week Ahead article, published on Sunday, sets out the releases and events to follow in the coming days.
Sources: Optencis Newsroom.
