The U.S. Producer Price Index was unexpectedly strong in September, jumping 0.4% for the second month in a row.

Energy prices drove the gains, although as BMO Nesbitt Burns points out, “they were tabulated early in the month when prices were still high. Since then, energy and other spot commodity prices have backtracked.” Aside from the strength in energy, core prices also rose 0.3%, also above expectations.

“More than food or energy, September’s price pressure was concentrated in the core, where prices rose at their fastest pace in five months,” says CIBC World Markets. “Much of the damage was done by passenger cars, which posted a second straight sizeable increase, in what appears to be a concerted effort on the part of the auto industry to restore margins. However, with mounting job losses hinting at a rapid erosion in consumer demand for big-ticket items, rising sticker prices will prove temporary, with large scale incentives re-introduced in October.”

Nevertheless, CIBC says there’s little threat of a meaningful breakout in underlying producer prices. “The absence of meaningful pricing power suggests producers will be hard pressed to drive prices higher in the months ahead.”

“Nothing is more reliable than falling wholesale price inflation in a recession. There is going to be intense price competition across the board in coming months, as capacity utilization rates are crumbling in virtually all industries, import prices remain in a downtrend, and the U.S. dollar is firm,” says BMO. “And, energy costs have been in retreat lately. What more could we ask for? Markets should ignore any hints of inflation in these figures. The case for lower producer price inflation is solid.”

CIBC concludes, “The Fed will turn a blind eye to September’s seemingly hot PPI result, as any misguided preoccupation with inflation developments today would only delay a US economic recovery tomorrow. This price surge expected to be only temporary, there remains little on the inflation front to stand in the way of additional monetary easing.”