Wholesale prices rose about as much as expected in August, the final inflation reading, as the Federal Reserve prepares to cut interest rates.
The Bureau of Labor Statistics said Thursday that the producer price index — a measure of the cost of final-demand goods and services received by producers — rose 0.2% from the previous month, in line with the Dow Jones consensus estimate.
Excluding food and energy, the PPI rose 0.3%, slightly above the consensus forecast of 0.2%, while excluding traded services, the core increase was the same.
On a trailing-12-month basis, headline PPI rose 1.7%. Excluding food, energy and trade, the annual rate was 3.3%.
In other economic news Thursday, the Labor Department said initial claims for unemployment insurance rose to 230,000 for the week ended Sept. 7, up 2,000 from the previous quarter and above expectations of 225,000.
Stock market futures were little changed after the report, while Treasury yields were broadly lower.
The PPI index was largely driven by services prices, which rose 0.4% from the previous month due to an increase in the price of services excluding trade, transport and warehousing, and a 4.8% increase in room rents.
Commodity prices were flat compared to the previous month, reversing a 0.6% increase in July.
The announcement came a day after the BLS reported that consumer prices rose 0.2% from the previous month, as expected, but the report also showed that core inflation rose 0.3%, slightly more than expected, with the increase mainly driven by higher housing-related costs.
On an annualized basis, headline CPI inflation fell to 2.5%, while core remained at 3.2%.
Neither report is expected to stop the Fed from cutting its benchmark interest rate by a quarter of a percentage point when it finishes its two-day policy meeting on Wednesday. The Fed’s key overnight borrowing rate is currently targeted at a range of 5.25% to 5.5%.
“With the producer price index essentially repeating yesterday’s consumer price index reading and jobless claims coming in as expected, the stage is set for the Fed to begin a rate cutting cycle,” said Chris Larkin, managing director of trading and investments at Morgan Stanley E-Trade. “While the market is initially expecting a quarter percentage point cut, the discussion will soon shift to how much and how fast the Fed will cut rates over the longer term.”
The market had signaled uncertainty about how much the Fed would cut rates, but recent data and comments from policymakers have led Wall Street to focus on a more traditional quarter-point cut rather than a more aggressive half-point cut. Traders expect the Fed to cut rates by one percentage point by the end of 2024, according to CME Group’s FedWatch indicator.
Federal Reserve officials have recently been paying increased attention to the slowdown in the labor market.
Jobless claims reports showed that while weekly claims have risen slightly over the past few months, there has not been a sharp increase in layoffs.
The number of renewal applications, which is announced one week later, increased slightly to 1.85 million, up just 5,000 from the previous quarter.
