US producer prices unexpectedly drop, first decline since April
This adds to the case for the Federal Reserve to cut interest rates
[WASHINGTON] US wholesale inflation unexpectedly declined in August for the first time in four months, adding to the case for the Federal Reserve to cut interest rates.
The producer price index decreased 0.1 per cent from a month earlier and July’s figure was revised down, according to a Bureau of Labor Statistics report out Wednesday (Sep 10). From the year before, the PPI rose 2.6 per cent.
The report suggests companies refrained from outsize price increases last month despite higher costs from President Donald Trump’s tariffs. While the step back follows a sizable advance in July, many firms have been wary that steep markups could push customers away at a time when economic uncertainty continues to weigh on spending decisions.
US stock futures and Treasuries rallied after the release.
Goods prices excluding food and energy rose 0.3 per cent. Services costs fell 0.2 per cent. Within services, margins at wholesalers and retailers fell 1.7 per cent, matching the biggest drop in data going back to 2009. Margins have been volatile from month to month so far this year, underscoring uncertainty around the impact of trade policy on prices and demand.
The extent to which companies pass the burden from tariffs on to consumers will be key in shaping the path for interest rates this year. While Fed officials generally expect import levies to push inflation higher through the remainder of 2025, they’re undecided over whether it will be a one-time adjustment or a more enduring effect.
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Consumer price data due Thursday will offer insights on the extent to which tariffs made their way to American households in August. Forecasters expect another elevated monthly advance in the core measure which excludes food and energy.
Policymakers are largely expected to cut rates when they meet next week in an effort to counter a rapid slowdown in the labour market. Fed chair Jerome Powell cautiously opened the door to a cut at the Fed’s Jackson Hole symposium last month, and more recent data showed the hiring slowdown extended into August.
Economists also pay close attention to the PPI report because some of its components are used to calculate the Fed’s preferred measure of inflation, the personal consumption expenditures price index. Those measures were mixed in August: Portfolio management services and airfares continued to rise at a solid pace, while various measures of health care services were more tame.
A less-volatile PPI metric that excludes food, energy and trade services rose 0.3 per cent. Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, rose 0.4 per cent. BLOOMBERG
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