Economic Report: Wholesale inflation falls for first time in 18 months, PPI shows

Economic Report: Wholesale inflation falls for first time in 18 months, PPI shows
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Wholesale prices for goods and services fell in August for the first time in a year and half, perhaps a sign inflation is leveling off.

The numbers: The wholesale cost of U.S. goods and services fell in August for the first time in a year and a half as the recent upturn in inflation appeared to ease, at least temporarily.


The producer price index declined by 0.1% last month, the Labor Department said Wednesday. Economists polled by MarketWatch had forecast a 0.2% increase.


The drop in wholesale prices was the first since February 2017.


One big caveat: The decline was tied to lower margins for services such as retail and transportation, a volatile category of limited use in predicting the pattern of inflation.


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Still, the increase in wholesale inflation over the past year also fell to 2.8% from 3.3%, perhaps a better indication that upward pressure on prices may be leveling off. The yearly rate had hit a seven-year high two months ago.


What’s more, the cost of partly finished and raw materials also eased again in August.


What happened: The cost of services fell by 0.1% and accounted for the decline in overall wholesale inflation.


The price of goods were unchanged. A 0.4% increase in the wholesale cost of gasoline and other forms of energy was offset by a 0.6% decline in food prices.


The effect of recent U.S. and retaliatory foreign tariffs were less evident in the latest report, but wholesale prices are prone to sharp swings whose immediate cause is not easy to decipher.


Core wholesale inflation rose 0.1% in August. The core rate strips out the volatile components of food, energy and trade margins. The 12-month rate edged up to 2.9% to match its 2018 high.


Read: Bigger pay raises are coming for millions of Americans thanks to sinking unemployment


Big picture: The booming U.S. economy has produced enough inflation to push the Federal Reserve into a somewhat more aggressive posture. The central bank is widely expected to raise interest rates at the end of September and then once more before year end.


Economists are split on the direction of inflation. Some brush off the recent decline in wholesale prices and expect inflation to edge higher in the coming months. Others believe inflation will continue to moderate but remain elevated.


What they are saying? “We doubt core PPI inflation has peaked despite the unexpected weakness of the past two months’ numbers,” said Ian Shepherdson of Pantheon Economics.


Read: U.S. adds 201,000 jobs as worker wages accelerate to nine-year high


Market reaction: The Dow Jones Industrial Average DJIA, +0.20% and the S&P 500 SPX, +0.02% rose in early Wednesday trades. The stock market has moved lower in September after a big rally in August.


The 10-year Treasury yield TMUBMUSD10Y, -0.65% was little changed at 2.96% and is flirting with 3% for the first time since June ahead of the Fed’s expected increase in interest rates.