Unexpected Rise in Producer Prices in August
The Producer Price Index (PPI) for August has shown a surprising increase, surpassing expectations. The headline PPI rose by 0.2% month on month (MoM), compared to the expected 0.1% MoM. This has resulted in a year on year (YoY) PPI of +1.7%, the lowest it has been since February.
Core PPI Also Surpasses Expectations
The core PPI, which excludes volatile items such as food and energy, also rose more than expected, recording a 0.3% MoM increase. This has led to a re-acceleration of the YoY core PPI.
Final Demand Services
The prices for final demand services increased by 0.4% in August, reversing the 0.3% decline seen in July. Approximately 60% of this increase can be attributed to a 0.3% rise in the index for final demand services excluding trade, transportation, and warehousing.
Product Detail
A significant factor in the August increase in prices for final demand services was a 4.8% rise in the index for guestroom rental. Other indexes that moved higher include machinery and vehicle wholesaling, automotive fuels and lubricants retailing, residential real estate loans, professional and commercial equipment wholesaling, and furniture retailing. On the other hand, prices for airline passenger services fell by 0.8%, while the indexes for food and alcohol retailing and membership dues, admissions, and recreational facility use fees also decreased.
Final Demand Goods
Prices for final demand goods remained unchanged in August, following a 0.6% rise in July. In August, the indexes for final demand goods excluding foods and energy, and for final demand foods, advanced by 0.2% and 0.1% respectively. In contrast, prices for final demand energy fell by 0.9%.
Product Detail
In August, the index for non-electronic cigarettes increased by 2.3%. Prices for chicken eggs, gasoline, diesel fuel, and drugs and pharmaceuticals also moved up. Conversely, the index for jet fuel decreased by 10.5%. Prices for meats, electric power, hay, hayseeds, and oilseeds, and nonferrous scrap also declined.
Implications for the Federal Reserve
These figures present a challenging picture for the Federal Reserve, which has been adopting a dovish stance.
Bottom Line
The unexpected rise in the Producer Price Index for August presents a complex picture for economic policy makers. What are your thoughts on these developments? Do you think this trend will continue? Share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, which is delivered every day at 6pm.
