August saw a moderate respite from rising inflation, which is likely to lead the U.S. economy back into recession.
A Bureau of Labor Statistics Wednesday report showed that the producer price index, which is a gauge of prices received at wholesale, dropped 0.1%. PPI rose 0.2%, excluding food, energy, and trade services.
Dow Jones polled economists who expected the headline PPI would fall to 0.1%.
Year-over-year, headline PPI rose 8.7%. This is a notable decrease from the 9.8% July rise and represents the lowest annual increase since August 2021. Core PPI increased by 5.6% compared to a year earlier, equaling the lowest level since June 2021.
Like it was in the past, the fall in prices resulted primarily from the decline in energy.
In August, the index for final energy fell 6%. This was due to a 12.7% decrease in gasoline prices. It is responsible for over three quarters of the 1.2% drop in final demand goods’ final price. This helped to feed into consumer prices which dropped sharply following a brief peak of $5 per gallon earlier in the summer.
The monthly increase in wholesale services prices was 0.4%. This indicates that there is a new transition. Covid pandemicThe -era saw goods inflation skyrocketing. Prices for final demand services rose 0.4% per month. The 0.8% trade service increase was the remainder.
The BLS published August consumer price index data, which was slightly higher than the expected. Both reports are different in that PPI shows the amount producers get for finished goods while CPI represents what consumers pay on the market.
Bill Adams (chief economist at Comerica Bank) stated, “The PPI reports fleshes out US inflation and makes them look not quite so bad as the august CPI report.” The drop in gas prices clearly shows that inflation is slowing. The process is still slow. Inflation looks likely to remain well above Fed’s target for at minimum a few additional quarters.
As wholesale prices drive the economy, PPI may be an indicator of inflation. Its significance has diminished over time as more of the total expenditure is made up of manufactured goods.
Stocks plunged following the Tuesday report. Expectations for Federal Reserve action during next week’s meeting soared. The PPI report had positive effects on stock market futures, while Treasury yields were also higher.
The markets were weighing in on a quarter-point and three-quarter percent interest rate increases. According to CME Group fed funds futures data, there was a 1 in 3 chance that the Fed will raise the interest rate by a full percentage.