U.S. producer prices fell for the second consecutive month in August as the cost of gasoline continued to fall, marking the smallest annual increase in a year, which could allay fears. for inflation to take hold.
Wednesday’s Labor Department report also showed core producer inflation rose modestly last month, suggesting tensions in supply chains are easing.
The report came after a surprise rise in consumer prices for August was released on Tuesday, reinforcing expectations of a third 75 basis point interest rate hike by the Federal Reserve next Wednesday.
“Today offers a bit of good news that the hurdles in the economy’s supply chain are starting to ease,” said Christopher Rupkey, chief economist at FWDBONDS in New York.
“Although inflation is not fully contained, there is hope that the easing of PPI goods price pressures will lead to lower future inflation for goods on store shelves and bought by consumers. “.
The producer price index for final demand fell 0.1% last month, after falling 0.4% in July. The drop in the PPI was due to a 1.2% decline in goods prices, in line with economists’ expectations.
The decline in goods prices, which followed a 1.7% drop in July, was largely due to a 12.7% drop in the cost of gasoline. Food prices did not change.
The cost of services increased 0.4%, after rising 0.2% in July. 60% of last month’s gain in services was attributed to a 0.8% rise in margins earned by wholesalers and retailers.
Portfolio management prices rose. But there were declines in trucking and room rental costs, as well as in food and alcohol retailing.
In the 12 months to August, the PPI increased 8.7%. It was the weakest year-on-year reading since August 2021 and followed a 9.8% rise in July.
Excluding the volatile components of food, energy and commercial services, producer prices increased 0.2% in August. The so-called core PPI rose 0.1% in July. In the 12 months to August, the core PPI rose 5.6%, after rising 5.8% in July.
Federal Reserve officials will meet next Tuesday and Wednesday for their regular monetary policy meeting. Financial markets have priced in a 75 basis point interest rate hike next Wednesday, with the possibility of a one percentage point hike, according to CME’s FedWatch tool.
The US central bank has raised its interest rate twice by three-quarters of a percentage point, in June and July. Since March, it has raised the interest rate from near zero to its current range of 2.25% to 2.50%.