Wholesale prices measured by the Bureau of Labor Statistics fell 0.1% in August, a surprising retreat that arrives one week before the Federal Open Market Committee (FOMC) meets to consider a potential rate cut. The producer price index (PPI) slipped despite expectations for a monthly rise, with core PPI (excluding food and energy) also down 0.1%. Markets reacted quickly: futures rallied and Treasury yields ticked lower as traders priced in an imminent policy move. The report and an incoming consumer price release are being watched closely for signals about whether the Fed will follow through on expectations for its first cut since December 2024.
Key takeaways
- PPI fell 0.1% in August after July’s figure was revised down from a 0.7% increase; economists had expected a 0.3% gain.
- Core PPI, excluding food and energy, dropped 0.1% in August versus a consensus projection of +0.3%.
- When excluding food, energy and trade margins, PPI rose 0.3%, indicating some underlying goods inflation remains.
- Services prices declined 0.2% in August; a 1.7% fall in trade services—driven by a 3.9% plunge in machinery and vehicle wholesaling margins—was a major contributor.
- Final demand food prices ticked up 0.1% while energy costs fell 0.4% for the month.
- Market pricing implied a 100% probability of a Fed rate cut at the upcoming meeting; futures and Treasury yields moved to reflect that shift.
- Policymakers still point to inflation above the 2% target, even as housing and wage pressures show tentative easing.
- A recent BLS jobs revision showing ~1 million fewer payrolls created in the year before March 2025 has heightened concerns about labor-market strength.
Background
The PPI monitors price changes before they reach consumers and is closely watched by the Federal Reserve as one gauge of inflation pressures facing businesses. Over the past year, headline inflation measures have eased from pandemic-era peaks but remain above the Fed’s 2% objective. Policymakers have delayed cutting rates amid concerns about persistent services inflation and the uncertain effects of recent trade measures.
President Donald Trump’s aggressive tariff actions on U.S. imports this year have complicated the outlook. While tariffs historically have not produced sustained inflation, the broad scope of recent moves has raised the risk that costs could spread through supply chains and margins. The Fed has flagged housing and wages as central to future inflation dynamics; both have shown signs of moderation that officials say could allow prices to decline gradually.
Main event
The Bureau of Labor Statistics reported a 0.1% decline in the producer price index for August on Wednesday, a reversal from prior expectations and coming after July’s estimate was revised downward. Core producer prices, which strip out volatile food and energy components, also fell 0.1%—surprising markets that had anticipated a 0.3% increase. When further excluding trade margins, PPI recorded a 0.3% gain, signaling that some upstream pressure persists.
Breaking down the report, goods prices edged up 0.1% overall while services prices fell 0.2%. Trade services were especially weak, with a 1.7% drop largely tied to a 3.9% decline in margins for machinery and vehicle wholesaling. Final demand food rose 0.1% and energy declined 0.4% for the month, moderating headline pressure.
Financial markets moved immediately after the release: stock futures rose and Treasury yields softened as market-implied odds for a September rate cut climbed. Futures pricing has been reflecting traders’ expectations that the FOMC will approve its first rate reduction since December 2024, although officials have repeatedly emphasized they will set policy based on data flow.
Analysis & implications
The unexpected drop in PPI gives the Fed somewhat more latitude to consider easing policy, but it does not guarantee action. Officials face a mixed data landscape: disinflation in wholesale prices and some cooling in housing and wages point toward slower inflation, yet headline inflation remains above the 2% goal. The committee will weigh whether recent softness in producer prices is durable or a short-lived reprieve driven by volatile components.
Tariffs complicate the calculus. If import duties push up costs broadly, the Fed could be forced to hold rates longer to prevent a second-round inflation effect. Markets have already priced a high probability of a cut, so the Fed’s communications about the path of future policy—via the statement and updated dot plot—may matter as much as any single rate move for financial conditions and expectations.
Labor-market developments add another constraint. The BLS revision indicating nearly 1 million fewer payrolls in the year before March 2025 has heightened concerns about growth and employment resilience. A weakening job market would support a rate cut narrative, but the Fed will also be attentive to wage growth trends that can sustain services inflation.
International spillovers are worth watching: lower U.S. rates would likely ease dollar strength and could affect capital flows, commodity prices and foreign central bank responses. The timing and size of any Fed cut will therefore influence global financial conditions beyond the immediate market reaction.
Comparison & data
| Series | July (revised) | August |
|---|---|---|
| PPI (headline) | +0.7% (revised down) | -0.1% |
| Core PPI (ex food & energy) | (prior) | -0.1% |
| Ex food, energy & trade | (prior) | +0.3% |
| Services | (prior) | -0.2% |
| Trade services | (prior) | -1.7% |
| Machinery & vehicle wholesaling margins | (prior) | -3.9% |
| Final demand food | (prior) | +0.1% |
| Energy | (prior) | -0.4% |
The table highlights the swing from July to August, with headline PPI moving from a revised upturn to a slight decline. The detailed breakdown shows uneven behavior across goods, services and trade margins, underscoring why policymakers will study multiple series—not just the headline number—when assessing inflation momentum.
Reactions & quotes
Officials, market participants and political leaders offered rapid responses that framed the report in different ways.
“solid”
Federal Reserve officials (characterization)
Fed officials have repeatedly used the phrase to describe the labor market even as data show areas of softness; the term signals their continued focus on employment when judging policy moves.
“100% probability of a rate cut”
Futures market pricing (CME Group)
Traders interpreted the PPI print as reinforcing expectations for a September cut, which had already been fully priced by many market instruments ahead of the BLS release.
“Tariffs will not be inflationary”
President Donald Trump (public statements)
The administration maintains that tariffs are not fueling inflation, a stance that contrasts with some economists’ warnings that broad-based trade measures can transmit higher costs through supply chains.
Unconfirmed
- Whether the August PPI decline represents a durable trend or a temporary pullback in volatile components remains uncertain.
- The exact extent to which recent tariffs will feed through to consumer prices over coming quarters is not yet established.
- It is unconfirmed whether the FOMC will follow market-implied odds and cut rates at the next meeting; the decision will depend on incoming data and committee judgment.
Bottom line
The August PPI decline eases some near-term inflation concerns and strengthens market expectations for a September rate cut, but it is only one datapoint in a complex landscape. Fed officials will weigh this report against consumer inflation data, labor-market signals and the uncertain effects of tariffs before changing the policy rate.
Investors and businesses should prepare for continued volatility: markets have priced in a policy shift, but Fed communications and subsequent data releases can quickly alter expectations. Over the medium term, the durability of disinflation will hinge on wage trends, housing costs and whether trade measures exert lasting price pressure.