WASHINGTON (Reuters) – U.S. producer prices rose more slowly than expected in August amid higher service costs, but the trend remained in line with inflation.
The producer price index for final demand rose 0.2% last month, the Labor Department’s Bureau of Labor Statistics said Thursday. July data was revised down to show PPI unchanged instead of a 0.1% increase as previously reported.
Economists polled by Reuters had forecast PPI to gain 0.1%.
In the 12 months to August, PPI increased by 1.7% after improving by 2.1% in July. Government data on Wednesday showed consumer prices rose slightly in August, although some stickiness remained with inflation.
Cooling inflation and a slowdown in the labor market have set the Federal Reserve to begin its policy easing cycle next Wednesday, with a 25 basis point rate cut confirmed.
The central bank kept its overnight interest rate in the current range of 5.25%-5.50% for the year, raising it by 525 basis points in 2022 and 2023.
A 0.4% increase in services accounted for the increase in PPI last month. Services, which fell 0.3% in July, last month were boosted by a 4.8% rise in hotel and hotel prices. But air fares fell by 0.8%.
Trade services, which measures changes in margins earned by wholesalers and retailers, rose 0.6%. Consumers push back against higher prices, reducing business pricing power.
Portfolio management fees, hotel and hotel accommodations and airfare are among the components that go into the calculation of the personal consumption expenditures (PCE) price index, a measure of inflation that the Fed tracks with its 2% target.
Commodity prices were unchanged last month after rising 0.6% in July. Energy prices fell by 0.9%. Food prices gained 0.1%. Excluding volatile food and energy components, commodity prices rose 0.2% after similar developments in July.
The core PPI, which strips out food, energy and trade, rose 0.3%, matching July’s gain. The so-called core PPI rose 3.3% year-on-year after rising 3.2% in July.
