U.S. wholesale prices rose more than 5% from a year earlier in August, with higher energy costs pushing producer inflation higher and adding to the data the Federal Reserve will consider ahead of its September interest-rate meeting.
The Producer Price Index, which measures prices received by producers for goods and services, increased a seasonally adjusted 0.4% in August, matching economists’ expectations, according to the Bureau of Labor Statistics. On an annual basis, the index rose 5.4%, slightly above the 5.3% forecast.
Energy Prices Drive Wholesale Increase
Energy was a major contributor to the August increase. Final-demand energy prices jumped 4.2%, while diesel prices surged 24.1% during the month.
Prices for goods overall increased 1.1%, while services prices rose 0.1%. Transportation and warehousing prices increased 2.3%.
Higher energy and transportation costs can filter through supply chains, potentially increasing the prices businesses charge consumers for products ranging from groceries and clothing to manufactured goods.
Other categories also recorded increases. Airfares rose 4.2%, while hospital care and physician services became more expensive. Electronic components have also faced pricing pressure amid strong demand associated with artificial intelligence data centers.
Core PPI Rises At A Slower Pace
Excluding food and energy, core PPI increased 0.2% in August, below the 0.3% economists had expected and slower than July’s revised 0.3% monthly gain.
Core prices were up 4.6% from a year earlier, compared with a revised 4.3% in July.
Food prices increased just 0.1% during the month, while electric utility prices declined.
The figures indicate that energy accounted for a significant share of the latest increase, although price gains were spread across several other areas of the economy.
Fed Rate Decision Comes Into Focus
The PPI report arrives days before the Federal Reserve’s September 15-16 policy meeting. The central bank is closely monitoring inflation as it determines whether its current interest-rate policy is sufficiently restrictive.
Market expectations shifted following Thursday’s report, with traders increasing bets that the Fed could raise its benchmark interest rate. Reuters reported that futures markets raised the odds of a quarter-point hike at the Sept. 15-16 meeting to about 70% from 62% before the PPI data.
The PPI is also used in calculating the Federal Reserve’s preferred inflation measure, the Personal Consumption Expenditures price index.
Fed officials have differed over how aggressively the central bank should respond to persistent inflation. Some have emphasized the need to bring inflation back toward the Fed’s 2% objective, while others have said policymakers should wait for additional data.
Consumer Inflation Report Due Friday
The next major inflation reading will come Friday, when the Labor Department releases the August Consumer Price Index. The BLS has scheduled the report for September 11.
The CPI report will provide another important indicator ahead of the Fed’s policy meeting. Economists expect the consumer inflation figures, along with other economic data, to help determine whether price pressures are broadening or remain concentrated in areas such as energy.
The combination of wholesale inflation, energy prices, and upcoming consumer inflation data leaves the Federal Reserve with several indicators to weigh before its September decision.
