US inflation cooled off at the wholesale level as businesses’ margins took a big hit in August, new data showed Wednesday.
Producer prices unexpectedly fell 0.1% in August, cooling annual inflation to 2.6% from a downwardly revised 3.1% in July, according to Bureau of Labor Statistics data.
Helping to drive prices lower was a 1.7% drop in trade services, a category reflective of producers, wholesalers and retailers’ profit margins. If margins are shrinking, it could be an indication that businesses are using those to eat higher costs, economists have said.
The trade services category can be highly volatile; however, August’s drop is the biggest monthly decline there in more than a year.
When excluding highly volatile components like trade services, as well as food and energy, the underlying inflation trend appears less rosy: Prices rose 0.3% from July and ticked up to 2.8% for the 12 months ended in August.
Still, Wednesday’s report painted a picture of inflation not drastically escalating at the wholesale level, a dynamic that bolstered investors’ expectations that the Federal Reserve will follow through cutting interest rates later this month.
“The tariff effect is not boosting across-the-board price pressures yet,” Christopher Rupkey, chief economist at FwdBonds, wrote Wednesday in a note. “Economists will still caution markets that core producer goods prices are rising significantly at the producer level, so the country is not out of the woods from the inflation threat.”
“But the warnings are falling on deaf ears as far as investors are concerned. As time goes on one has to wonder if there are slow-growth reasons and weak economic demand that is keeping inflation in check,” he added.
Stock futures moved higher after the data release. Dow futures were up 30 points, paring earlier losses. S&P 500 futures rose 0.54% and Nasdaq 100 futures gained 0.57%. Two-year Treasury yields fell.
Economists were expecting that the overall PPI, which measures the change in prices received by producers of goods and services, would increase by 0.4% on a monthly basis and hold unchanged at the previously estimated 3.3% from a year ago.
PPI serves as a potential bellwether for the prices consumers may see at businesses in the months ahead.
By CNN
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