WASHINGTON: US producer prices unexpectedly fell in August, recording their first drop in 1½ years, as declines in the prices of food and a range of trade services offset an increase in the cost of energy products.
Despite the surprise weakness in producer prices reported by the Labour Department on Wednesday, overall inflation is steadily rising, driven by a tightening labour market and robust economy. The Federal Reserve is expected to raise interest rates later this month for the third time this year.
“Inflation pressures should intensify in coming quarters,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “The unemployment rate is low, GDP growth is above trend, wage growth is accelerating ... and fiscal policy is supportive for the economy.”
The producer price index for final demand slipped 0.1 per cent last month after being unchanged in July. August’s fall in the PPI was the first since February 2017. That further lowered the annual increase in the PPI to 2.8 per cent from 3.3 per cent in July.
Economists polled by Reuters had forecast the PPI increasing 0.2 per cent in August and advancing 3.2 per cent year-on-year. A key gauge of underlying producer price pressures that excludes food, energy and trade services edged up 0.1 per cent last month. The so-called core PPI gained 0.3 per cent in July.
In the 12 months through August, the core PPI increased 2.9 per cent after rising 2.8 per cent in July.
DECLINING MARGINS: The correlation between producer and consumer prices has weakened after the government revamped the PPI basket and changed the methodology several years ago.
The Fed’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, increased 2.0 per cent in July, hitting the US central bank’s 2 per cent target for the third time this year.
Government data on Thursday is expected to show consumer prices rising 0.3 per cent in August after gaining 0.2 per cent in July, according to a Reuters survey of economists.
There has so far been no widespread price increases from the Trump administration’s import tariffs on lumber, washing machines, solar panels, steel and aluminium, as well as a range of Chinese goods.
But with the trade war between the United States and China escalating, economists believe this will change and expect the import duties to boost inflation in the coming months. Recent manufacturing surveys continue to show increases in raw material prices amid growing strains on the supply chain.
Wholesale food prices fell 0.6 per cent in August, pulled down by sharp declines in the costs of eggs and fresh fruits and melons. Food prices, which dipped 0.1 per cent in July, have now decreased for three straight months. Wholesale energy prices rose 0.4 per cent in August, with gasoline prices surging 0.6 per cent after slipping 0.1 per cent in the prior month. Energy prices fell 0.5 per cent in July. Overall, the cost of wholesale goods was unchanged in August after edging up 0.1 per cent in July. Prices for iron and steel scrap fell 5.6 per cent last month, the biggest drop since October 2017. Nonferrous scrap prices decreased 8.7 per cent, the largest decline since January 2009.
— Reuters
Oman Observer is now on the WhatsApp channel. Click here
