Wholesale prices fell unexpectedly in August

Wholesale prices deflated in August, coming in well shy of expectations as businesses adjusted to new tariff and immigration policies being carried out by the Trump administration.

The producer price index (PPI) ticked down by 0.1 percent in August after economists were predicting it to rise by 0.3 percent on the month. The index for final demand fell to a 2.6 percent annual increase from 3.3 percent in July, shy of economist expectations of a 3.1 percent rise.

Taking out the more volatile categories of energy, food and trade services, the “core” of the index still showed strength, coming in ahead of expectations. 

Core PPI rose by 0.3 percent in August, marking the fourth increase in a row of increases. Annually, the core moved up by 2.8 percent, the largest climb since March. Economists were expecting an increase of about 2.7 percent.

Economists have been keeping a close eye on price data in recent months to see where tariffs are showing up as input costs in various value chains. Headline PPI doesn’t reflect input costs directly but measures prices from the seller side.

Input cost changes are better reflected in the series’ intermediate demand measurement, which “tracks price changes for inputs consumed,” the Bureau of Labor Statistics says.

Stage 4 intermediate demand prices rose to a 3.1 percent annual increase in August from 2.6 percent in July, a rise that caught economists’ eye. 

“[That’s] the highest since Mar. 2023 or, if you go pre-pandemic, Nov. 2018,” Yale Budget Lab Director Ernie Tedeschi wrote in a commentary.

Taking out food and energy in intermediate demand, the subindex rose to a 3.8 percent increase.

The softer headline PPI print for August supports a Federal Reserve interest rate cut next week, which is already a near-certainty due to recent weakness in employment conditions. The economy added just 22,000 jobs in August, bringing the three-month average down to 29,000 jobs created per month.

Futures markets on Wednesday predicted a quarter-point cut with 90 percent odds and a half-point cut with 10 percent odds.

“Non-existent wholesale inflation gives even more justification for the Federal Reserve to cut interest rates,” Alfredo Ortiz, CEO of Job Creators Network, a business advocacy group, said in a commentary.

Updated at 9:36 a.m. EDT