US producer prices unexpectedly fall in August

US Producer Price Index contracted by 0.1% in August after growing by 0.7% previous month (downwardly revised from 0.9%) and fell below consensus for 0.3% rise.

Annualized PPI grew by 2.6% last month, well below 3.3% forecast and July’s downwardly revised 3.1% increase (from 3.3%).

So-called core PPI, stripped for the most volatile components, was up by 2.8% in August y/y, compared to 3.4% increase in July (revised down from 3.7%) and undershot expectations for 3.5% increase.

Unexpected fall in producer prices will contribute to Fed’s widely expected decision to cut interest rates in their September policy meeting next week.

Drop in the costs of services was the biggest contribution to August’s numbers, as services prices dropped 0.2% last month after jumping by 0.7% in July, followed by 0.1% rise in goods prices in August, compared to 0.6% increase in July.

Economists are not very optimistic despite better than expected PPI numbers in August and expect consumer prices to rise, due to anticipated price pressure from US import tariffs. The US August inflation report is due tomorrow, September 11.

The US central bank’s Federal Open Market Committee meets next week and is widely expected to deliver a 25-basis points rate cut, for the first time since December.

Significant weakening in the US labor market, which raises concerns that the economy was stagnating, was mainly behind expectations for a rate cut.