Inflation Not as Benign as First Indicated by Drop in PPI
|Producer prices came in softer than expected in August, falling 0.1%. The miss stemmed largely from the volatile trade-services sector, which measures margins. The underlying trend in inflation continues to inch higher.
At the Margin
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PPI inflation unexpectedly slipped 0.1% in August. Goods prices were flat, but the miss came in large part from services, specifically a 0.9% drop in the volatile trade-services sector, which measures margins, not selling prices. Declining margins at machinery and equipment firms accounted for 80% of the decline in services this month and suggest producers may be struggling to pass on rising input costs related to recent tariffs.
Core Inflation Continues to Gradually Climb
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Our preferred measure of core inflation, which excludes food, energy and trade services, also came in a bit softer than expected –up 0.1%— as transportation & warehousing prices fell. The trend remains upward, however, with the "core-core" measure climbing to 2.9% over the past 12 months versus 1.9% the 12 months prior.
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Input prices eased a bit in August, but are still running ahead of final prices. Pressure on margins therefore looks to continue.
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