The Producer Price Index for final demand increased 0.4 per cent from July on a seasonally adjusted basis, the Bureau of Labor Statistics said on Thursday. The monthly rise matched economists’ expectations, while the annual increase exceeded the roughly 5.3 per cent rate anticipated by some forecasters.
The August data marked a clear acceleration from July, when final-demand producer prices were up 4.7 per cent from a year earlier, according to the Labor Department’s revised figures. Final-demand prices had been unchanged on a monthly basis in July and had slipped 0.1 per cent in June.
Goods prices accounted for most of the August increase. The index for final-demand goods advanced 1.1 per cent during the month, driven largely by a 4.2 per cent jump in energy prices. Diesel fuel prices surged 24.1 per cent from July, while gasoline, jet fuel and home-heating oil also moved higher.
More than one-third of the increase in final-demand goods was attributed to diesel fuel, the government data showed. Food prices rose only 0.1 per cent, limiting some of the pressure from energy, while prices for goods excluding food and energy also increased.
Services prices were comparatively subdued, rising 0.1 per cent in August. Transportation and warehousing services were among the categories that moved higher, while the relatively small overall services increase helped prevent a larger rise in the headline producer-price index.
A measure of underlying producer inflation that excludes food and energy rose 0.2 per cent from July and 4.6 per cent from a year earlier. A separate index excluding food, energy and trade services increased 0.3 per cent for the month and 4.7 per cent over the 12 months through August.
The acceleration was concentrated in goods rather than services, underscoring the role of fuel in the August reading. Final-demand energy prices had fallen in July before rebounding sharply, amplifying the month-to-month movement in the headline index. The increase also followed a period in which energy-related producer costs had shown volatility.
Within services, higher margins for some trade categories were offset by softer readings elsewhere. The narrower measure excluding food, energy and trade services is watched because it strips out categories that can swing from month to month and can provide a steadier indication of underlying producer-price pressure.
The figures add to evidence that inflation pressures remain elevated as the Federal Reserve prepares for its September policy meeting. Producer-price data are closely watched because several components feed into the personal consumption expenditures price index, the inflation measure used by the Federal Reserve for its 2 per cent target.
Financial markets responded by increasing expectations that policymakers could raise interest rates at the meeting scheduled for September 16. Futures markets also weakened after the release, with technology shares facing particularly heavy pressure before the opening of regular trading.
The Federal Reserve’s benchmark overnight interest-rate target currently stands at 3.50 per cent to 3.75 per cent. Policymakers have been weighing persistent inflation against signs that conditions in the labour market have become more stable, leaving incoming price data central to the next policy decision.
Energy has become a more prominent source of inflation pressure as oil prices have climbed amid heightened tensions involving the United States and Iran. Higher fuel costs can flow through transportation, manufacturing and distribution networks, raising costs for businesses even when service-sector price growth is more restrained.
The producer-price report does not measure what households pay directly. Instead, it tracks changes in prices received by domestic producers for goods, services and construction, making it an early indicator of cost pressures that may later appear in consumer prices.
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