US producer prices data point to tame inflation pressures

[WASHINGTON] US producer prices were flat in August, pointing to benign inflation pressures that could weigh on the Federal Reserve's decision whether to hike interest rates next week.

The unchanged reading in the producer price index last month followed a 0.2 per cent gain in July, the Labour Department said on Friday. The drag on producer prices from lower crude oil prices and a strong dollar was offset by an increase in profit margins for apparel, footwear and accessories retailing.

In the 12 months through August, the PPI fell 0.8 per cent after a similar decline in July. It was the seventh straight 12-month decrease in the index.

Tame inflation despite a rapidly tightening labour market poses a dilemma for Fed officials who are contemplating raising rates for the first time in nearly a decade.

Though job openings are at a record high and the unemployment rate is at a 7-1/2-year low, wage gains have been lacklustre. That has helped keep inflation well below the Fed's 2 per cent target.

The US central bank's policy-setting committee meets on Sept. 16-17. The likelihood of a lift-off in the Fed's benchmark overnight interest rate has been diminished by recent financial market volatility, which was sparked by concerns over China's economy.

US stock index futures extended losses after the PPI data, while the dollar added to gains against a basket of currencies. Prices for US government debt rose.

Economists polled by Reuters had forecast the PPI dipping 0.1 per cent last month and falling 0.9 per cent from a year ago.

Producer inflation is likely to remain muted in the near term after a report on Thursday showed import prices fell 1.8 per cent in August, the largest drop since January.

The index for final goods fell 0.6 per cent last month, with a 7.7 per cent decline in gasoline prices accounting for nearly two-thirds of the drop. There also were decreases in the cost of jet fuel, grains, light motor trucks, and iron and steel scrap.

Wholesale food prices rose 0.3 per cent in August as the impact of an avian flu outbreak early this year continued to linger. Food prices slipped 0.1 per cent in July. Wholesale chicken egg prices rose 23.2 per cent last month after falling 24.2 per cent in July.

The volatile trade services component, which mostly reflects profit margins at retailers and wholesalers, shot up 0.9 per cent in August after rising 0.4 per cent in the prior month. Almost half of the increase in August was attributed to a 7.0 per cent surge in margins for apparel, footwear and accessories retailing.

A key measure of underlying producer price pressures that excludes food, energy and trade services edged up 0.1 per cent in August after rising 0.2 per cent in July.

The dollar's 17.5 per cent rise against the currencies of the United States' main trading partners since June 2014 is restraining gains in the so-called core PPI.

Core PPI was up 0.7 per cent in the 12 months through August.

REUTERS