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Wholesale Prices Dip, Fueling Speculation of Fed Rate Cut
10 Sep
Summary
- Wholesale prices dropped 0.1% in August, below expectations
- Core PPI also fell 0.1%, contrary to forecasts of a 0.3% increase
- Odds of a larger 0.5% rate cut by the Fed have risen slightly
According to the latest data from the Bureau of Labor Statistics, wholesale prices in the United States dropped slightly in August, potentially paving the way for the Federal Reserve to cut interest rates at its upcoming September meeting. The Producer Price Index, which measures the input costs of goods and services, fell by 0.1% last month, significantly below the Dow Jones estimate of a 0.3% increase.
The core PPI, which excludes volatile food and energy prices, also declined by 0.1%, contrary to the expected 0.3% rise. This unexpected slowdown in wholesale inflation has raised the odds of a larger 0.5% rate cut by the Federal Open Market Committee when it meets on September 16-17. The CME Group's FedWatch gauge now puts the probability of a 0.5% reduction at around 10%.
The drop in wholesale prices was driven by a 0.2% decline in the index for final demand services, the largest such decrease since April. This was primarily due to a 1.7% drop in margins for final demand trade services. However, the indexes for final demand services excluding trade, transportation, and warehousing, as well as for final demand transportation and warehousing services, both increased.
On the goods side, prices for final demand products rose 0.1% in August, marking the fourth consecutive monthly advance. The index for final demand goods less food and energy climbed 0.3%, while the index for final demand foods edged up 0.1%. Conversely, prices for final demand energy declined 0.4%.
