US producer prices unexpectedly fell in August, driven by a compression in trade services margins and a mild increase in goods costs. This suggests that domestic firms are likely absorbing some of the tariffs on imports. According to the Labor Department’s Bureau of Labor Statistics, the Producer Price Index (PPI) for final demand dipped 0.1 per cent last month, following a downwardly revised 0.7 per cent jump in July. Economists had forecast a 0.3 per cent advance.
The decline in the PPI was primarily due to a 0.2 per cent drop in services prices, which followed a 0.7 per cent rebound in July. This decrease was largely influenced by a 1.7 per cent decline in margins for trade services, reflecting a 3.9 per cent decrease in margins for machinery and vehicle wholesaling. The subdued producer price pressures, despite import duties, may signal softening domestic demand amid a struggling labour market.
The Federal Reserve is anticipated to cut interest rates at its policy meeting next Wednesday. A quarter-percentage-point reduction is fully priced in, following a pause in the easing cycle in January due to uncertainty over the impact of President Donald Trump’s import tariffs. “Inflation barely has a heartbeat at the producer level which shows the tariff effect is not boosting across-the-board price pressures yet,” said Christopher Rupkey, chief economist at FWDBONDS.
