U.S. producer prices unexpectedly fell in August as wholesalers absorbed tariff-related costs, signalling easing inflation pressure. Image: Solutions260.
(The Post News) – U.S. producer prices fell in August for the first time in months, showing a relief from inflation as wholesalers are absorbing tariff-related costs.
The Producer Price Index (PPI) measuring the cost of goods and services firms charge before they are paid by consumers fell 0.1% in July, the Labor Department reported on Wednesday. The fall followed a 0.7% rise in July. On a year-over-year basis, PPI rose 2.6%, from July’s revised 3.1%.
Economists were expecting wholesale inflation to increase 0.3% in August. Instead, softer numbers brought relief that tariffs imposed by President Donald Trump have not yet triggered runaway inflation.
Services Pull Prices Lower
The biggest weight on the index was services. Wholesale service prices decreased 0.2%, headed by a 1.7% drop in margins for trade services. This was the largest decline in more than a year.
Trade services, which measure fluctuations in wholesalers’ and retailers’ profit margins, tend to swing wildly from one month to the next. August’s sharp decline, however, indicates that companies are taking tariff costs on the chin rather than passing them along to consumers.
“Retailers have been taking tariff costs over the past few months,” said Stephen Stanley, chief economist for Santander U.S. Capital Markets. “They’ve held their line as long as they could, but selective price hikes are coming.”.
Other types of services increased. Transportation and warehousing services increased 0.9%, portfolio management fees rose by 2%, and airline fares and hotel rates both moved forward.
On the plus side, prices inched 0.1% higher, after a stronger 0.6% climb in July. Food prices climbed moderately as rising beef and coffee prices trumped egg and fresh fruit declines. Wholesale beef increased 6% during August and over 21% versus last year. Coffee prices jumped 6.9% during August and over 33% versus last year.
Energy costs, though, dipped 0.4%, assisting in keeping general goods inflation stable. Stripping out food and energy, core producer goods prices rose 0.3%, a sign the tariffs are continuing to find their way into some sectors.
Federal Reserve Likely to Cut Rates
The lower inflation reading supported investor expectations that the Federal Reserve will reduce interest rates next week for the first time this year. The market has already accounted for a quarter-point cut.
“Inflation barely has a heartbeat at the production level,” FWDBonds chief economist Christopher Rupkey said. “There is nothing that will stop an interest rate cut now.” President Trump was quick to seize on the report to pressure the Fed. On Truth Social, he wrote: “Just out: No Inflation!!! ‘Too Late’ must lower the RATE, BIG, right now.”
Even as wholesale inflation is moderated, economists warn that companies cannot keep passing on added costs indefinitely. When margins continue to become squeezed, companies will pass along even more of the costs to consumers. “These figures reflect ongoing business reactions to tariffs,” said Nationwide economist Oren Klachkin. “Tariff effects will become more evident later in the year with inventories decreasing.”
The backdrop is already challenging. Government data this week showed the labor market added 911,000 fewer jobs in the year through March than earlier estimated. Job growth nearly stalled in August, fueling worries about slowing demand.
Wall Street Mixed on Data
Markets reacted cautiously. The Dow Jones Industrial Average slipped 65 points (0.14%), while the S&P 500 and Nasdaq each rose 0.4%. Treasury yields dropped, and the dollar weakened against major currencies.
The PPI figures are released a day before the release of the Consumer Price Index (CPI), the most widely used measure of inflation. Economists expect CPI to report a 0.3% increase for August, bringing year-on-year consumer inflation to 2.9%, the strongest since January.
If it is true, faster consumer inflation coupled with slowing jobs growth would mark the onset of stagflation threats, a mix of slackening expansion and rising prices that squeeze household budgets.
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