Producer prices rose more than expected in September, signaling that the inflation genie isn't back in the bottle yet.

According to the Department of Labor, the U.S. producer price index (PPI) increased by 0.5% in September and 2.2% year-over-year. Both figures were higher than expected.

Although much of the gain was driven by higher oil prices, excluding food and energy, producer prices rose faster than expected. The so-called “core” PPI increased by 0.3% compared to August and 2.7% year-over-year.

Economists expected a 0.2% monthly gain and a 2.5% annual increase.

Still, analysts warn that persistently high oil prices could severely undermine the fight against inflation. Will Compernolle, a macro strategist at FHN Financial, told Reuters that “rising energy prices pose an upside inflation risk via pass-through effects and inflation expectations.”

Meanwhile, the cost of wholesale goods increased by 0.9% in September, with energy products accounting for nearly three-quarters of the gain. Food prices jumped 0.9%, driven by higher prices for processed chicken and meat.

The data “suggests we haven’t seen the end of sticky inflation—and high interest rates,” Morgan Stanley’s head of model portfolio construction Mike Loewengart told CNBC.

“Lowering inflation significantly from last year’s highs was one challenge; getting it down to the Fed’s 2% target level is another.”

The problem with “sticky” inflation

"Sticky inflation" refers to prices that don’t quickly respond to changes in demand. It's one of the Fed's unsolved puzzles as policymakers try to quash inflation without tipping the economy into a recession.

According to the Fed's research, there are things that have a tendency to be "stickier" than others, including personal care products, alcohol, public transportation, insurance, and rent.

Now that sticky inflation is also showing up in producer costs, which signals there's potentially still a long way to go before the post-pandemic inflation surge is reversed.

Economists view producer inflation as a precursor to higher consumer prices. It makes sense: PPI measures the cost of producing consumer goods—if those costs go up, chances are they’ll be passed on to the consumer one way or another.

Rising bond yields are doing the Fed’s work

Even with the recent uptick in producer prices, and the long road before the Fed reaches 2% annual inflation, the central bank is no longer expected to raise rates anytime soon.

Part of the reason is that rising bond yields are doing the Fed’s work.

The 10-year Treasury yield—a benchmark for interest rates that affects mortgages, auto loans, and credit cards—recently hit 16-year highs and is up over 50 basis points from the start of September.

Prominent Fed officials have basically said that higher bond yields have forced them to re-evaluate the need to raise interest rates.

“If long-term interest rates remain elevated because of higher term premiums, there may be less need to raise the fed-funds rate,” Dallas Fed Bank president and voting FOMC member Lorie Logan said this week.