Wholesale inflation ticked up last month, exceeding expectations

By Elisabeth Buchwald, CNN

New York (CNN) — Wholesale inflation accelerated for the second month in a row, mirroring a similar trend in the Consumer Price Index report, the Bureau of Labor Statistics reported Thursday.

The Producer Price Index, a key measure of price changes at the wholesale level, rose to 1.6% from 1.3% for the 12 months ending in August.

On a month-to-month basis, producer price increases rose to 0.7% in August from July’s 0.3% pace. That was above with economists’ expectations of a 0.4% increase. August’s uptick was the largest one-month increase since June 2022.

Rise in energy prices drove index higher

The majority of August’s overall acceleration came from the 2% rise in final demand for goods, driven by a 10.5% increase in energy prices. In contrast, final demand for services rose by 0.2%. In prior months, service-side inflation was responsible for driving the index higher.

Stripping out the more volatile categories of food and energy, core PPI rose 2.2% on an annual basis in August, in line with economists’ expectations.

On a month-to-month basis, core PPI leveled off slightly, rising by 0.2% versus July’s revised 0.4% gain. This was also in line with economists expectations.

The PPI is a closely watched inflation gauge, since it captures average price shifts upstream of the consumer. It is viewed as a potential leading indicator of how prices could eventually behave at the store level.

More rate hikes merited?

Thursday’s report is evidence that “we are not out of the woods yet,” Raymond James’ chief economist Eugenio Aleman said, referring to seeing inflation return to the Federal Reserve’s 2% target.

The prices producers paid last month will likely get passed on to consumers in the coming months, he added.

But this week’s inflation data is unlikely to push the Fed to raise interest rates at its meeting next week. A majority of traders, 97%, are predicting the Fed will hold rates steady, according to the CME’s FedWatch tool.

There’s much less of a consensus on what the Fed will do in November. However, after Thursday’s PPI and retail sales report a fewer share of traders forecast a interest rate hike compared to Wednesday.

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