Wholesale Inflation Falls 0.1% In Surprise August Decline/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ The U.S. producer price index (PPI) unexpectedly slipped 0.1% in August, signaling weaker inflation pressures in the supply chain despite new tariffs on imports. Economists had expected an increase, but wholesale services and retail margins declined, offsetting rising import costs. The data strengthens expectations that the Federal Reserve will cut rates next week.
US Inflation — Quick Looks
- PPI fell 0.1% in August after a 0.7% jump in July
- Year-over-year PPI up 2.6%, core PPI up 2.8%
- Decline driven by lower wholesale services prices and slimmer retailer margins
- Tariffs’ impact muted so far, though coffee prices surged 33.3% year-over-year
- Economists: foreign suppliers discounting, weak demand, tariff uncertainty delaying pass-through
- CPI report due Thursday, expected 0.3% monthly rise, 2.9% year-over-year
- Weak PPI boosts odds of Fed rate cut next week
- President Trump: blasted Fed Chair Jerome Powell, demanded faster cuts
- Labor Department also revised job growth downward by 911,000 for past year
Deep Look: US Producer Prices Unexpectedly Decline As Fed Faces Pressure To Cut Rates
WASHINGTON — U.S. wholesale inflation unexpectedly fell 0.1% in August, marking a sharp reversal from July’s 0.7% increase and surprising economists who expected tariffs to keep pushing costs higher.
The producer price index (PPI), reported Wednesday by the Labor Department, tracks inflation at earlier stages of the supply chain before it reaches consumers. The decline suggests that businesses are absorbing tariff-related costs or delaying price hikes, a trend that could shape both monetary policy and consumer inflation in the coming months.
Breakdown of the Data
- Overall PPI: Fell 0.1% from July, rose 2.6% year-over-year
- Core PPI (excluding food and energy): Fell 0.1% month-to-month, up 2.8% annually
- Services sector: Prices declined 0.2%, reflecting lower profit margins at retailers and wholesalers
The pullback in services prices was particularly significant, economists said, because it showed retailers and distributors absorbing higher import costs linked to President Donald Trump’s tariffs rather than immediately passing them on to consumers.
Tariffs Not Yet Fully Felt
Economists had widely expected tariffs to push producer prices higher. Instead, analysts say multiple forces are blunting the impact.
“The big picture remains that tariff effects are feeding through only slowly,” wrote Stephen Brown, economist at Capital Economics.
Bill Adams, chief economist at Comerica Bank, suggested several reasons for the slower-than-expected price hikes:
- Foreign suppliers discounting to preserve U.S. market share
- Weak domestic demand limiting firms’ ability to raise prices
- Uncertainty over tariff levels, prompting companies to hold off on adjustments
Still, Adams noted some categories show sharp increases, such as coffee prices, which rose 6.9% from July and a staggering 33.3% from a year earlier.
Consumer Prices Up Next
The PPI release comes a day before the consumer price index (CPI), which is expected to show 0.3% growth from July and a 2.9% year-over-year increase.
Because PPI measures costs earlier in the supply chain, it is often seen as a leading indicator of consumer inflation trends. Components like health care and financial services feed directly into the Fed’s preferred inflation gauge, the personal consumption expenditures (PCE) index.
Fed Faces Decision
The surprise drop in wholesale inflation increases pressure on the Federal Reserve to deliver its first rate cut of 2025 when it meets next week.
Markets already expected the Fed to act, given signs the economy is cooling. On Tuesday, the Labor Department reported that job growth from April 2023 through March 2024 was 911,000 lower than initially estimated.
President Trump has been publicly urging the Fed to act aggressively, posting on social media shortly after the PPI report:
“Just out: No inflation!!! ‘Too Late’ must lower the RATE, BIG, right now. Powell is a total disaster, who doesn’t have a clue.”
Fed Chair Jerome Powell, who has resisted political pressure in the past, must now weigh softer inflation data against economic risks posed by tariffs, trade frictions, and slowing global demand.
Broader Economic Picture
While August’s PPI decline is welcome news for consumers and businesses squeezed by rising costs, economists caution that inflationary pressures are still present.
- Tariff-related costs may rise if businesses eventually pass along price hikes
- Certain imports, such as food and raw materials, are already spiking
- With consumer inflation still near 3%, price stability is not yet secured
Still, the report highlights a potential easing in inflationary momentum, offering the Fed room to act.
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