producer prices — US producer prices fell unexpectedly in August, hinting at how domestic businesses are absorbing some of the tariffs on imports. The Producer Price Index (PPI) for final demand dipped by 0.1 per cent, contrasting sharply with economists’ expectations of a 0.3 per cent increase following a revised 0.7 per cent rise in July.
The decline in the PPI was primarily driven by a 0.2 per cent drop in service prices, which followed a rebound the previous month. Notably, trade services margins experienced a significant 1.7 per cent decline, particularly influenced by a 3.9 per cent decrease in margins for machinery and vehicle wholesaling.
In contrast, certain sectors saw price increases. Services less trade, transportation, and warehousing rose by 0.3 per cent, with transportation and warehousing services jumping 0.9 per cent. Portfolio management fees also increased by 2.0 per cent, while airline fares and hotel room prices rose by 1.0 per cent and 0.9 per cent, respectively.
On the goods side, prices edged up by 0.1 per cent, following a 0.6 per cent increase in July. Food prices saw a similar 0.1 per cent rise, despite fluctuating costs; increases in beef and coffee prices, due to tariffs, were partially offset by declines in eggs and fresh fruits. Wholesale beef prices surged by 6.0 per cent, and coffee prices jumped by 6.9 per cent, reflecting the ongoing impact of tariffs.
Energy prices, however, fell by 0.4 per cent. Excluding food and energy, producer goods prices rose by 0.3 per cent, indicating some pass-through effects from tariffs. Over the year until August, the PPI increased by 2.6 per cent, down from a 3.1 per cent rise in July.
Economists are now predicting that the pressures from tariffs will soon reflect in consumer inflation for August. As this unfolds, the Federal Reserve is widely expected to cut interest rates by a quarter percentage point next Wednesday, a move anticipated after a pause in January due to uncertainties surrounding President Trump’s tariffs.
Christopher Rupkey, chief economist at FWDBONDS, noted the current environment: “Inflation barely has a heartbeat at the producer level, which shows the tariff effect is not boosting across-the-board price pressures yet.” He expressed concerns about the potential for slow growth and weak economic demand stifling inflation further.
The labour market’s struggles have also raised alarms about economic stagnation. Recent government estimates revealed that the economy likely created 911,000 fewer jobs in the past year than previously thought. This data coincided with a monthly employment report indicating nearly flat job growth in August, marking the first job losses in June for the first time in over four years.
As markets reacted to this news, US stocks opened higher, while the dollar slipped against other currencies. Concurrently, US Treasury yields fell, signalling investor caution amidst these economic indicators.
