After advancing at its fastest pace in three years in July, wholesale inflation cooled in August, according to new figures published Wednesday by the U.S. Bureau of Labor Statistics (BLS).
The update to the producer price index (PPI), which tracks prices for goods and services purchased directly from producers, showed 0.1% declines over the month and 2.6% of growth year over year for wholesale inflation. Economists polled by The Wall Street Journal had projected a 0.3% monthly rise.
President Donald Trump quickly seized on the tamer-than-expected PPI data, writing on social media, “Just out: No Inflation!!!”
Trump added, using his nickname for Federal Reserve Chairman Jerome Powell: “‘Too Late’ must lower the RATE, BIG, right now.”
The PPI is widely regarded as an indicator of consumer prices in months ahead, given the way it captures inflation in the supply chain. Another closely watched measure of inflation, the consumer price index, will be published Thursday morning. Together, these figures present the most up-to-date picture of inflation in the U.S., informing the Federal Reserve’s decision on interest rates next week. Cooling producer prices support projected easing.
Concerns over labor market weakness have led investors to price the odds of a 25-basis-point cut to the benchmark federal funds rate at 92% as of Wednesday morning, per the CME FedWatch tool, which tracks fed funds futures prices. Major revisions to annual payroll figures for the year ending in March added to anxieties that the U.S. jobs market has been weaker than assumed for longer than supposed.
Core producer prices, which exclude volatile food and energy prices, also fell 0.1% from July while rising 2.8% year over year. The BLS revised July’s advance in wholesale inflation down to 0.7% from 0.9% on a monthly basis, and to 3.1% from 3.3% year over year.
The Labor Department unit attributed the overall decrease in the final demand index for August to thinning business margins, specifically a 1.7% decline in margins for final demand trade services. However, three-quarters of the August price decline for final demand services can be attributed to a 3.9% decline in margins for machinery and vehicle wholesaling.
Thinning profit margins for some wholesalers and retailers could be a sign that businesses are eating the cost of Trump’s tariffs on imports. Slight divergence emerged in August between prices for final demand services, which fell 0.2%, and final demand goods, which rose 0.1%, marking the fourth consecutive month of increases.
While rising services prices have been the largest driver of inflation in recent months, Trump administration tariffs are not thought to have fueled that growth. More closely tied to tariffs, prices for final demand goods minus volatile food and energy prices grew 0.3% in August, reflecting a steady rise in wholesale goods prices.
August updates to the Federal Reserve’s preferred inflation gauge, the personal consumption expenditures (PCE) price index, will not be published until late September. However, the PCE index has risen steadily in recent months, from 2.2% annual growth in April to 2.6% annual growth in both June and July. The Federal Reserve has set a 2% inflation target.
