Wholesale prices in the U.S. unexpectedly fell 0.1% in August, giving the Federal Reserve room to approve an interest rate cut at its upcoming policy meeting, according to a Bureau of Labor Statistics (BLS) report released Wednesday.
Producer price index shows moderation
The producer price index (PPI), which tracks input costs across goods and services, declined 0.1% for the month, following a downwardly revised 0.7% increase in July and below the expected 0.3% rise. On a year-on-year basis, headline PPI rose 2.6%.
Core PPI, excluding volatile food and energy prices, also fell 0.1% versus expectations for a 0.3% gain. Excluding food, energy, and trade, PPI rose 0.3% for the month and 2.8% year-on-year.
Market reaction and Fed outlook
Following the report, stock market futures gained while Treasury yields were slightly lower. Futures markets currently price in a 100% probability of a first Fed rate cut since December 2024, with odds for a larger 50-bps reduction rising slightly to about 10%, according to CME Group’s FedWatch tool.
Services prices, a key metric for policymakers, dropped 0.2%, led by a 1.7% decline in trade services and a 3.9% fall in margins for machinery and vehicle wholesaling. Goods prices rose modestly by 0.1%, with food up 0.1% and energy down 0.4%.
Inflation pressures and economic context
Despite inflation remaining above the Fed’s 2% target, easing housing and wage pressures are expected to gradually moderate price growth. The Fed has so far resisted rate cuts in 2025 while monitoring the effects of President Trump’s tariffs, which historically have not caused sustained inflation, although some categories—such as tobacco and portfolio management costs—saw notable increases.
Recent labor market data showing weaker-than-expected job gains have raised concerns about the economy, reinforcing expectations that the Fed may ease monetary policy at its meeting next week. The session will feature both a rate decision and updated guidance on future policy and economic outlook.
