Despite rising inflation driven by higher energy costs, American consumers continue to spend at a robust pace, supporting the U.S. economy for the time being. Data released this week highlights a complex picture in which rising prices are straining producers and households alike, yet consumer spending remains resilient.

The producer price index, which tracks wholesale costs before they reach shoppers, surged 6.3% in September compared to a year earlier—the largest annual increase in nearly four years. On a monthly basis, wholesale prices climbed 1.3%, propelled by a 20% rise in gas prices. Higher diesel costs have increased expenses for transportation, affecting shipping by truck and rail, and contributing to a 1.2% monthly jump in wholesale food prices, the largest since February.

These wholesale price increases followed consumer price data showing inflation in September at 3.7%, well above the Federal Reserve’s 2% goal. Rising fuel costs particularly impact the price of goods throughout the supply chain, as transportation is a critical component in moving materials and finished products. Farmers’ dependence on diesel-powered equipment may further elevate food prices in coming months.

Despite these cost pressures, retail sales increased by 0.8% in September, surpassing expectations. Much of the gain reflected a 6.4% rise in spending at gas stations, but consumers also increased expenditures at restaurants and bars by 1.1%. When excluding gasoline, retail sales rose a more modest 0.2%, with much of the growth attributed to higher prices rather than volume.

The labor market remains a key factor underpinning consumer spending. Although hiring slowed sharply to 29,000 new jobs in September from a revised 133,000 in August, the unemployment rate edged only slightly higher to 4.2%, remaining near historically low levels. Weekly initial claims for unemployment benefits also stayed below 200,000, indicating relatively low layoffs.

Economists caution, however, that sustained inflation could gradually erode Americans’ purchasing power. Real wages in September declined from a year earlier for the first time since May, and many households report a pessimistic economic outlook. As a result, while consumers have so far maintained spending by drawing on savings and credit, continued inflationary pressure may dampen future demand.

In response to persistent inflation, the Federal Reserve is expected to raise its benchmark interest rate again this year to moderate spending and price increases. The Fed’s September meeting resulted in a quarter-point rate hike to about 3.9%, marking its first increase in three years. The central bank signaled that additional tightening measures may be necessary to meet its inflation targets, which could lead to higher borrowing costs for mortgages, auto loans, and credit cards in the months ahead.