The US Producer Price Index (PPI) increased by 0.2% in August, according to the Bureau of Labor Statistics. This rise follows a flat reading in July and outpaced the 0.1% gain that Bloomberg’s survey had predicted. It is also important to mention that excluding food and energy prices, the core PPI climbed 0.3%, above the 0.2% gain expected and a 0.2% decline in the previous month.
On a yearly basis, the Producer Price Index (PPI) rose by 1.7% in August, down from 2.1% in July. However, when excluding just food and energy, the PPI ticked up slightly to 2.4% from 2.3%. Meanwhile, the PPI excluding food, energy, and trade services saw a modest increase to 3.3%, up from 3.2%.
The hotter-than-expected read on the PPI coupled with Wednesday’s hotter read on the core CPI, thanks to a larger increase in shelter and airline fares, underscores the Federal Open Market Committee’s lingering focus on inflation, according to a research company Stifel note Thursday. Stifel Chief Economist Lindsey Piegza said in the note:
“While continuing a disinflationary trend and supporting the Fed’s intentions to open the door to rate cuts in less than one week’s time, the ongoing uncertainty and unevenness in price growth reinforces the need for a slow and tempered approach to policy adjustment as the data continue to evolve.”
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Federal Open Market Committee Policy
The Federal Open Market Committee is set to announce its policy decision on September 18 but as of Thursday afternoon, the chance of a 50 basis point interest rate cut plummeted to 13%, down from 40% just a week ago, according to the CME Group’s FedWatch Tool. Meanwhile, the probability of a 25 basis point cut has risen to 87%, up from 60% a week prior.
In the weeks ahead, the Federal Reserve’s policy decisions will be crucial for investors but corporate performance for Q3 will also set the tone for investor sentiment. Strong earnings could fuel optimism, while disappointing results might dampen enthusiasm.
In other economic news, initial jobless claims in the US increased to 230,000 for the week ending September 7, up from a revised 228,000 the previous week. This was higher than the 227,000 decrease that analysts had expected, according to a Bloomberg survey.
