| Consensus | Consensus Range | Actual | Previous | Revised | |
|---|---|---|---|---|---|
| PPI-FD - M/M | 0.3% | 0.2% to 0.6% | -0.1% | 0.9% | 0.7% |
| PPI-FD - Y/Y | 3.3% | 3.3% to 3.3% | 2.6% | 3.3% | |
| Ex-Food & Energy - M/M | 0.3% | 0.2% to 0.4% | -0.1% | 0.9% | 0.7% |
| Ex-Food & Energy - Y/Y | 3.5% | 3.4% to 3.7% | 2.8% | 3.7% | |
| Ex-Food, Energy & Trade Services - M/M | 0.3% | 0.3% to 0.3% | 0.3% | 0.6% | |
| Ex-Food, Energy & Trade Services - Y/Y | 2.8% | 2.8% | |||
| PPI-FD Goods - M/M change | 0.1% | 0.7% | 0.6% | ||
| PPI-FD Goods - Y/Y change | 2.1% | 1.9% | |||
| PPI-FD Services - M/M change | -0.2% | 1.1% | 0.7% | ||
| PPI-FD Services - Y/Y change | 2.9% | 4.0% |
Highlights
The August wholesale prices fell unexpectedly, although it is worth noting that the decline was due to the drop in the cost of services not tariffs-impacted goods. While this might provide some cover for the Federal Reserve to cut rates this month, there is not enough in the data for the central bank to declare 'Mission Accomplished' in its inflation fight.
It is also too soon to say, however, if this is a one-off or the start of a waning impact from tariffs.
Margins for final demand trade services (a measure of the changes in margins received by wholesalers and retailers) declined 1.7 percent, after a 1 percent rise last month (and a 2.9 percent increase) compared to a year ago. This means less of the tariffs-related costs passed on to by wholesalers last month. Excluding trade services, wholesale costs were up 0.4 percent last month and jumped 2.8 percent from a year ago.
U.S. wholesale price inflation as measured by the Producer Price Index for final demand fell 0.1 percent in August, following a 0.7 percent spike (revised from +0.9 percent) in July, and nowhere near expectations for a 0.3 percent rise in the Econoday survey of forecasters. Final demand prices were up 0.1 percent in June and saw a 0.4 percent increase in May.
Compared to August 2024, final demand PPI rose 2.6 percent, compared to a 3.3 percent increase for the 12 months ended in July. Expectations were for a 3.3 percent rise.
Final demand prices excluding foods, energy, and trade services saw a 0.3 percent rise in August, following a 0.6 percent jump in July, and a 0.1 percent uptick in June. For the 12 months ended in August, prices for final demand less foods, energy, and trade services rose 2.8 percent, compared to a 2.8 percent increase on an annual basis in July.
Prices for final demand goods saw a 0.1 percent increase following July's 0.6 percent rise. This is the fourth consecutive monthly increase. Goods prices excluding food and energy rose 0.3 percent. Prices for final demand services saw a 0.2 percent drop in August, after a 0.7 percent jump in July. The services index excluding trade, transportation, and warehousing and for final demand transportation and warehousing services increased 0.3 percent and 0.9 percent, respectively.
August final demand prices excluding food and energy came in down 0.1 percent, following a 0.7 percent surge in July, and are up 2.8 percent from a year ago after a 3.7 percent rise in July.
Food prices rose 0.1 percent after a 1.4 percent increase in July, and jumped 3.5 percent compared to August 2024. Energy prices fell 0.4 percent in August after a 0.7 percent jump in July, but are down 1.9 percent when compared to August 2024 (after prices fell 3.2 percent on an annual basis in July).
It is also too soon to say, however, if this is a one-off or the start of a waning impact from tariffs.
Margins for final demand trade services (a measure of the changes in margins received by wholesalers and retailers) declined 1.7 percent, after a 1 percent rise last month (and a 2.9 percent increase) compared to a year ago. This means less of the tariffs-related costs passed on to by wholesalers last month. Excluding trade services, wholesale costs were up 0.4 percent last month and jumped 2.8 percent from a year ago.
U.S. wholesale price inflation as measured by the Producer Price Index for final demand fell 0.1 percent in August, following a 0.7 percent spike (revised from +0.9 percent) in July, and nowhere near expectations for a 0.3 percent rise in the Econoday survey of forecasters. Final demand prices were up 0.1 percent in June and saw a 0.4 percent increase in May.
Compared to August 2024, final demand PPI rose 2.6 percent, compared to a 3.3 percent increase for the 12 months ended in July. Expectations were for a 3.3 percent rise.
Final demand prices excluding foods, energy, and trade services saw a 0.3 percent rise in August, following a 0.6 percent jump in July, and a 0.1 percent uptick in June. For the 12 months ended in August, prices for final demand less foods, energy, and trade services rose 2.8 percent, compared to a 2.8 percent increase on an annual basis in July.
Prices for final demand goods saw a 0.1 percent increase following July's 0.6 percent rise. This is the fourth consecutive monthly increase. Goods prices excluding food and energy rose 0.3 percent. Prices for final demand services saw a 0.2 percent drop in August, after a 0.7 percent jump in July. The services index excluding trade, transportation, and warehousing and for final demand transportation and warehousing services increased 0.3 percent and 0.9 percent, respectively.
August final demand prices excluding food and energy came in down 0.1 percent, following a 0.7 percent surge in July, and are up 2.8 percent from a year ago after a 3.7 percent rise in July.
Food prices rose 0.1 percent after a 1.4 percent increase in July, and jumped 3.5 percent compared to August 2024. Energy prices fell 0.4 percent in August after a 0.7 percent jump in July, but are down 1.9 percent when compared to August 2024 (after prices fell 3.2 percent on an annual basis in July).
Market Consensus Before Announcement
The consensus sees PPI-FD up 0.3 percent on month in August and up 3.3 percent on year after an ugly increase of 0.9 percent on month and 3.3 percent on year in July. The June figure reflected a tariff jolt which should be more muted in August. Lower energy prices should help too.
Definition
The Producer Price Index (PPI) of the Bureau of Labor Statistics (BLS) is a family of indexes that measures the average change over time in the prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller. Effective with the January 2014 PPI data release in February 2014, BLS transitioned from the Stage of Processing (SOP) to the Final Demand-Intermediate Demand (FD-ID) aggregation system. The headline PPI (for Final Demand) measures price changes for goods, services, and construction sold to final demand: personal consumption, capital investment, government purchases, and exports.
Description
The PPI measures prices at the producer level before they are passed along to final consumers. A portion of the inflation at the producer level gets passed through to the consumer price index (CPI). By tracking price pressures in the pipeline, investors can anticipate inflationary consequences in coming months.
While the CPI is the price index with the most impact in setting interest rates, the PPI provides significant information earlier in the production process. As a starting point, interest rates have an"inflation premium" and components for risk factors. A lender will want the money paid back from a loan to at least have the same purchasing power as when loaned. The interest rate at a minimum equals the inflation rate to maintain purchasing power and this generally is based on the CPI. Changes in inflation lead to changes in interest rates and, in turn, in equity prices.
The PPI comes in two key main versions: final demand (FD) and intermediate demand (ID). The final demand portion is composed of six main price indexes: final demand goods; final demand trade services; final demand transportation and warehousing services; final demand services less trade, transportation, and warehousing; final demand construction; and overall final demand.
The intermediate demand portion of the FD-ID system tracks price changes for goods, services, and construction products sold to businesses as inputs to production, excluding capital investment. There are two parallel treatments of intermediate demand, each constructed from the identical set of commodity price indexes. The first treatment organizes commodities according to commodity type, and the second organizes commodities using a stage-based, production flow model.
The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to producers increase, businesses are faced with either charging higher prices or taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace.
Under the prior PPI system, the producer price index was substantially more volatile than the consumer price index because the CPI included services while the PPI did not. Volatility has been reduced substantially in the PPI-FD due to the inclusion of services but the PPI still is more volatile than the CPI. Wages are a bigger share of the costs at the retail level than at the producer level and this plays a role in the CPI’s lower volatility. Also, the PPI does not include owners’ equivalent rent—a large and slow moving component in the CPI. Food and energy prices are major sources of volatility in the PPI, hence, the greater focus on the"core PPI" which excludes these two components.
The bond market rallies when the PPI decreases or posts only small increases, but bond prices fall when the PPI posts larger-than-expected gains. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
While the CPI is the price index with the most impact in setting interest rates, the PPI provides significant information earlier in the production process. As a starting point, interest rates have an"inflation premium" and components for risk factors. A lender will want the money paid back from a loan to at least have the same purchasing power as when loaned. The interest rate at a minimum equals the inflation rate to maintain purchasing power and this generally is based on the CPI. Changes in inflation lead to changes in interest rates and, in turn, in equity prices.
The PPI comes in two key main versions: final demand (FD) and intermediate demand (ID). The final demand portion is composed of six main price indexes: final demand goods; final demand trade services; final demand transportation and warehousing services; final demand services less trade, transportation, and warehousing; final demand construction; and overall final demand.
The intermediate demand portion of the FD-ID system tracks price changes for goods, services, and construction products sold to businesses as inputs to production, excluding capital investment. There are two parallel treatments of intermediate demand, each constructed from the identical set of commodity price indexes. The first treatment organizes commodities according to commodity type, and the second organizes commodities using a stage-based, production flow model.
The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to producers increase, businesses are faced with either charging higher prices or taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace.
Under the prior PPI system, the producer price index was substantially more volatile than the consumer price index because the CPI included services while the PPI did not. Volatility has been reduced substantially in the PPI-FD due to the inclusion of services but the PPI still is more volatile than the CPI. Wages are a bigger share of the costs at the retail level than at the producer level and this plays a role in the CPI’s lower volatility. Also, the PPI does not include owners’ equivalent rent—a large and slow moving component in the CPI. Food and energy prices are major sources of volatility in the PPI, hence, the greater focus on the"core PPI" which excludes these two components.
The bond market rallies when the PPI decreases or posts only small increases, but bond prices fall when the PPI posts larger-than-expected gains. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
