US Producer Prices Rise Higher Than Market Forecast in August

A worker handles 155 mm calibre shells after the manufacturing process at the Scranton Army Ammunition Plant in Scranton, Pa., on April 16, 2024. Charly Triballeau/AFP via Getty Images

The producer price index (PPI)—a gauge of prices businesses pay for goods and services—rose higher than expected, with most of the increase attributed to the final demand for services.

According to the Bureau of Labor Statistics, producer prices jumped by 0.2 percent in August, up from the 0.1 percent increase in July. The market had penciled in an increase of 0.1 percent.

The PPI increase eased to a lower-than-expected 1.7 percent year over year, down from a revised 2.1 percent in the previous month. This is the lowest level since February 2024.

Core producer prices, which remove the volatile energy, food, and trade services components, surged by 0.3 percent, up from the 0.2 percent drop in July. The consensus estimate was a 0.2 percent gain.

On a year-over-year basis, core PPI growth was unchanged at 2.4 percent.

Goods inflation held steady while services inflation climbed by 0.4 percent.

PPI data show that prices for chicken eggs, diesel fuel, drugs and pharmaceuticals, and gasoline moved up last month. Prices for electric power, hay, hayseeds, meats, and oilseeds declined.

Cumulatively, producer prices have spiked by 26 percent since January 2021. By comparison, the consumer price index (CPI) has surged by about 20 percent in the same span.

Economists pay attention to the PPI because it is a potential indicator of future inflation trends, as it is reflected early on in the supply chain.

The latest PPI numbers follow a slowing of the annual inflation rate to a lower-than-expected 2.5 percent in August, the lowest level since February 2021.

While there has been some upward pressure on producer prices, the annualized readings suggest wholesale inflation has stabilized.

Market Reaction

U.S. stocks were little changed following the PPI data in pre-market trading.

Treasury yields were mixed, with the benchmark 10-year yield little changed at around 3.64 percent. The two-year yield dipped to 3.62 percent, while the 30-year bond picked up half a basis point to nearly 3.97 percent.

The U.S. dollar index, a measurement of the greenback against a basket of currencies, was flat at 101.70.

Taylor St. Germain, an economist at ITR Economics, noted that U.S. producer prices in the 12 months through July were, on average, 1 percent above the same period a year ago. This could signal that price pressures could be revived in 2025 and 2026.

Federal Reserve in Washington on Aug. 12, 2024. Madalina Vasiliu/The Epoch Times

Additionally, he says, renewed economic activity, the loosening of monetary policy through lower interest rates, and the expansion of the Federal Reserve’s money supply could lead to inflation picking up.

“A gradual rise in the US M2 Money Supply indicates a slight increase in potential inflation starting around the end of this year,” he said in a note to The Epoch Times.

Since February, the Fed’s money supply has increased by 1.5 percent.

“Should the Federal Reserve lower rates as anticipated, we may see an uptick in spending on capital goods that could increase pricing pressures, but the effect will likely take time to develop. Rising labor costs and more nearshoring (which often means higher costs) will contribute to prices rising in the coming years,” St. Germain said.

Stagflation Talk Reignites

Speaking at a Council of Institutional Investors conference on Sept. 10, JPMorgan CEO Jamie Dimon said that the U.S. economy’s biggest risk is stagflation—a mix of stagnating economic growth and high inflation.

“I would say the worst outcome is stagflation—recession, higher inflation,” Dimon said. “And by the way, I wouldn’t take it off the table.”

The Institute for Supply Management’s (ISM’s) August Manufacturing Purchasing Managers’ Index (PMI)—a measurement indicating the sector’s prevailing trend—was stuck in contraction for the fifth consecutive month. At the same time, prices climbed at a higher-than-expected pace for the second straight month.

Likewise, the ISM’s Services PMI showed little change in activity while prices topped economists’ expectations.

S&P Global’s Manufacturing PMI also weakened last month as prices unexpectedly increased.

“The pace of input cost inflation quickened to a 16-month high, however, with output prices also rising at a faster pace,” Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a report.

Still, the Cleveland Fed’s Inflation Nowcasting model indicates further easing in the CPI next month. Global core inflation is anticipated to remain sticky and stubborn, coming in at 3.1 percent.