Customers are looking at clothing on display at the Costco branch in Niantic, Connecticut on April 18, 2025.
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The Producer Price Index, a measure of costs at the wholesale level in the US economy, recorded an unexpected 0.1% decline in August. What should you know about this:
For the third time this year, PPIs showed total deflation in what is generally considered a measure of pipeline price pressure. Wall Street economists were looking for a 0.3% increase. The core PPI, which removes food and energy, also fell by 0.1%, while the core negative trade services actually rose by 0.3%, while the tame reading only supplies market expectations for the Federal Reserve cut next week, and President Donald Trump quickly filed a lawsuit. “Just out: No inflation!!! “Too late” now needs to lower the big rate. Powell is a complete disaster and there are no clues!!” He posted on Truth Social in his latest shot at Fed Chair Jerome Powell. Market responses have calmed down, in response to the almost certainty of tamed inflation and rate reductions. Stocks are rising slightly, and Treasury yields move modestly low. PPIs are not generally considered to be a well-known or well-understood metric, and traders may be waiting for the printing of the consumer price index on Thursday. The PPI report provided good news on the fundamentals of inflation. The services sector, which drives about 80% of GDP, fell 0.2%, marking a complete decline. Even commodity prices, which were heavily affected by tariffs, rose by 0.1%. Similar to PPI, the consensus outlook is an increase of 0.3%. Approximately one-fifth of the number of CPIs and PPIs is fed into the Fed’s preferred inflation gauge, Personal Consumption Expense Price Index. The CPI is the final big data point before the Fed’s fee decision a week later.
What they are saying:
“The weight of CPI tomorrow will increase, but today’s PPI print essentially rolled out the red carpet to cut Fed rates next week. There’s still no way this will have a close impact on sentiment as the market had already expected to start a mitigation cycle after last week’s employment report.”
“The worst-case scenario on inflation has not been unfolded. The pigeons are happy to see it return to below 3% year-on-year. Combined with recent weak employment data, this is on a trajectory of rate reduction. However, speed and intensity could depend on the large consumer index tomorrow morning.” – David Russell, Global Head of Market Strategy for Tradestation.
“The PPI inflationary pressure appears to be muted overall. …I see nothing in this report (or impact on core PCE) that discourages Fed officials from cutting 25bp in September and 25bp at each future policy meeting.” – Citigroup economist Andrew Hollenhorst.
