Producer prices/ wholesale price index/ inflation slowdown/ price pressures easing/ Newslooks/ WASHINGTON/ U.S. wholesale inflation eased in August, with the producer price index rising just 0.2% from the previous month, signaling a continued slowdown in price pressures. Year-over-year, prices rose 1.7%, the smallest increase since February. These figures suggest that inflation is nearing the Federal Reserve’s 2% target, paving the way for potential interest rate cuts next week.
Wholesale Inflation Cooling Quick Looks:
- U.S. wholesale inflation increased just 0.2% in August, down from previous months.
- Year-over-year, wholesale prices rose 1.7%, the smallest increase since February.
- Core prices, excluding food and energy, increased by 0.3% from July.
- With inflation cooling, the Federal Reserve is expected to cut interest rates next week.
- The Fed raised rates 11 times in 2022 and 2023 to combat rising inflation.
Wholesale Inflation Cools, Signaling Fed Rate Cuts Ahead
Deep Look:
U.S. wholesale prices showed signs of further cooling in August, indicating that inflationary pressures are easing, which could prompt the Federal Reserve to start cutting interest rates in the coming days. According to the Labor Department’s report released on Thursday, the producer price index (PPI), which measures inflation before it reaches consumers, rose 0.2% from July to August. Although this is slightly higher than the previous month’s unchanged reading, it remains a modest increase compared to earlier inflation surges.
On a year-over-year basis, wholesale prices rose 1.7%, marking the smallest annual increase since February and down from 2.1% in July. This downward trend in wholesale inflation aligns with the broader pattern of slowing price growth across key sectors of the economy. Excluding volatile food and energy costs, core wholesale prices increased by 0.3% from the previous month and by 2.3% compared to August 2023.
These figures suggest that inflation is moving closer to the Federal Reserve’s target of 2%. After peaking at a 40-year high in mid-2022, prices for essentials like gasoline, groceries, and automobiles have either stabilized or are increasing at a much slower pace, more in line with pre-pandemic trends. The producer price index is closely watched as it offers insights into where consumer inflation is headed, given that some of its components, particularly healthcare and financial services, factor into the Fed’s preferred inflation measure, the personal consumption expenditures (PCE) index.
On Wednesday, the government reported that consumer inflation, as measured by the consumer price index (CPI), rose just 2.5% year-over-year in August. This marks the mildest 12-month increase in three years, offering further evidence that the inflationary pressures that gripped the economy after the pandemic are receding.
The latest data on inflation comes amid political debate over price spikes that began soon after the Biden administration took office. During a recent debate, former President Donald Trump criticized Vice President Kamala Harris, blaming her and the administration for the inflation surge. However, Trump’s characterization of inflation under Biden was exaggerated; inflation peaked at 9.1% in 2022, significantly lower than the 14.6% inflation rate seen in 1980.
In response to the high inflation of 2022, the Federal Reserve raised its benchmark interest rate 11 times, bringing it to its highest level in 23 years. These rate hikes were aimed at curbing the rapid rise in prices by slowing down economic activity. Now, with inflation showing signs of returning to the Fed’s 2% target, the central bank is poised to reverse course.
Economists widely expect the Fed to announce a modest quarter-point rate cut after its meeting next week. This move is intended to support economic growth and encourage hiring as the inflation threat recedes. Over time, a series of rate cuts would lower the cost of borrowing for consumers and businesses, affecting everything from mortgages and auto loans to credit card interest rates.
