Inflation cooled at the wholesale level in August as businesses absorbed costs through shrinking margins, raising investor confidence that the Federal Reserve will cut interest rates later this month.
Producer prices unexpectedly dipped 0.1% in August, bringing annual inflation down to 2.6% from a downwardly revised 3.1% in July, data from the Bureau of Labor Statistics showed Wednesday. Economists had forecast a 0.4% monthly increase and a 3.3% annual rate.
The decline was driven by a 1.7% drop in trade services, the largest monthly fall in over a year. That category, which reflects profit margins of producers, wholesalers, and retailers, is often volatile, but the sharp fall indicates businesses may be absorbing higher costs rather than passing them on.
Stripping out volatile components such as food, energy, and trade services, prices rose 0.3% from July and 2.8% year-on-year, suggesting underlying inflation pressures remain.
Still, the broader picture pointed to easing price growth at the producer level. “The tariff effect is not boosting across-the-board price pressures yet,” said Christopher Rupkey, chief economist at FwdBonds. “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.”
He added that slowing demand may also be helping to keep prices in check: “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.”
Markets responded positively to the data. Dow futures edged up 30 points, while S&P 500 futures rose 0.54% and Nasdaq 100 futures gained 0.57%. Yields on two-year Treasury notes slipped as investors factored in lower inflation risks.
Producer Price Index (PPI) figures are often viewed as an early signal of inflation trends that may filter into consumer prices in the coming months. August’s data, showing easing pressures, strengthened expectations that the Fed will move forward with rate cuts as it seeks to balance inflation control with slowing growth.
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