US producer prices post unexpected decline in August

US Producer Price Index slipped by 0.1% in August, following a downwardly revised 0.7% rise in July (from 0.9%), defying expectations for a 0.3% increase.

On an annual basis, PPI rose 2.6%, missing both the 3.3% forecast and July’s revised 3.1% growth (from 3.3%). Core PPI, excluding volatile components, climbed 2.8% year-on-year, down from July’s revised 3.4% (from 3.7%) and below the 3.5% forecast.

The surprise decline in producer prices strengthens expectations that the Federal Reserve will cut interest rates at its September policy meeting. Services costs, which fell 0.2% after surging 0.7% in July, drove the decline, while goods prices edged up 0.1% compared with a 0.6% rise the prior month.

Despite the softer-than-expected PPI, economists caution that consumer prices may still rise, with import tariffs likely to add upward pressure. August CPI data is due tomorrow, September 11.

The Federal Open Market Committee is widely expected to deliver a 25-basis-point rate cut next week, marking the first since December, as ongoing labor market weakness raises concerns about stagnation in the US economy.