Breaking: US annual PPI inflation declines to 2.6% in August vs. 3.3% expected
Producer inflation in the United States, as measured by the change in the Producer Price Index (PPI), declined to 2.6% on a yearly basis in August from 3.3% in July, the US Bureau of Labor Statistics (BLS) reported on Wednesday. This reading came in below the market expectation of 3.3%. On a monthly basis, the PPI declined by 0.1% following the 0.7% increase (revised from 0.9%) recorded in July.
Other details of the report showed that the core PPI, which excludes food and energy prices, declined by 0.1% on a monthly basis. The core PPI increased 2.8% on a yearly basis after rising 3.7% in July and missing analysts' estimate of 3.5% by a wide margin.
Market reaction to US Producer Price Index data
The US Dollar (USD) Index came under renewed bearish pressure with the immediate reaction and erased its daily gains. At the time of press, the USD Index was down 0.1% on the day at 97.65.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the weakest against the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.08% | -0.17% | 0.00% | 0.02% | -0.44% | -0.43% | -0.06% | |
| EUR | 0.08% | -0.08% | -0.02% | 0.10% | -0.41% | -0.36% | 0.03% | |
| GBP | 0.17% | 0.08% | 0.14% | 0.20% | -0.31% | -0.26% | 0.15% | |
| JPY | 0.00% | 0.02% | -0.14% | 0.13% | -0.46% | -0.41% | 0.28% | |
| CAD | -0.02% | -0.10% | -0.20% | -0.13% | -0.51% | -0.48% | -0.04% | |
| AUD | 0.44% | 0.41% | 0.31% | 0.46% | 0.51% | 0.04% | 0.47% | |
| NZD | 0.43% | 0.36% | 0.26% | 0.41% | 0.48% | -0.04% | 0.58% | |
| CHF | 0.06% | -0.03% | -0.15% | -0.28% | 0.04% | -0.47% | -0.58% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
This section below was published as a preview of the US Producer Price Index data at 06:00 GMT.
- The US Producer Price Index is set to rise 3.3% YoY in August, at the same pace as in July.
- The Fed is widely expected to cut the policy rate in September, with increased odds for a 50 bps trim.
- The August PPI could have a limited impact on the US Dollar ahead of the CPI release on Thursday.
The United States (US) will publish the August Producer Price Index (PPI) on Wednesday. The report, produced by the Bureau of Labor Statistics (BLS), will be published one day ahead of the Consumer Price Index (CPI) data for the same month, scheduled for Thursday.
Both indexes measure inflation, with the CPI focused on the total value of goods and services consumers buy, and the PPI measuring inflation at the wholesale, or producers' level. Generally speaking, PPI increases will ultimately be reflected in the CPI as producers pass on higher prices to consumers. When released before the CPI, it is an early indicator of higher price pressures.
What to expect in the next PPI data report?
Producer inflation in the US is expected to rise at an annual rate of 3.3% in August, following a similar reading in July. The core PPI inflation, which excludes the volatile food and energy prices, is forecast to rise 3.5% YoY, easing from the 3.7% posted in the previous month. Over the month, the PPI and core PPI are seen advancing by 0.3% each.
The CPI report tends to have a broader impact on financial markets, and given that it is scheduled for release 24 hours after the PPI report, the latter can have a reduced impact on the USD.
Inflation is one of the two legs on which the Federal Reserve (Fed) bases its monetary policy decisions. Central banks tend to be hawkish with increasing inflationary pressures, and dovish when pressure eases.
Given tepid employment figures released last week, market players have already fully priced in an upcoming interest rate cut when the Fed meets next week. The question now is whether the central bank will go for a 25 basis points (bps) trim or 50 bps, with the odds of the latter increasing ahead of the event.
Even further, the BLS reported on Tuesday that the preliminary estimate of the Current Employment Statistics (CES) national benchmark revision to total Nonfarm employment for March 2025 is -911,000, meaning the labor market is cooling at a faster-than-estimated pace.
How could the US Producer Price Index report affect EUR/USD?
Ahead of the inflation-related reports, market participants have fully priced in an interest rate cut when the Fed meets on September 16-17. According to the CME FedWatch Tool, the odds for a 25 bps cut stand at 88.2%, while the remaining 11.8% is betting on a 50 bps cut.
Fed officials are currently in a blackout period, meaning policymakers should refrain from discussing monetary policy in public roughly two weeks ahead of their scheduled meeting. But beforehand, and what actually triggered markets fully pricing in a rate cut, were Chair Jerome Powell's words at the Jackson Hole Symposium.
Powell was quite explicit about the possibility of an interest rate cut. “With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” Powell said.
Powell highlighted the challenges the Fed faces: On the one hand, US President Donald Trump’s tariffs pose an upward risk to inflation, and on the other hand, Trump’s immigration policies weaken the US labor market.
Market participants will initially look at headline monthly and annual figures, and then turn their attention to the core data. Generally speaking, higher-than-anticipated prints tend to boost demand for the USD, as market players will reduce odds for upcoming interest rate cuts, while the opposite scenario is also valid: softer data will weigh on the Greenback, as investors will add to bets of forthcoming interest rate cuts.
Valeria Bednarik, Chief Analyst at FXStreet, notes: “The EUR/USD pair trades above the 1.1700 threshold heading into the PPI announcement, with the US Dollar finding some near-term demand, but far from bullish. The pair recently peaked at 1.1780 and seesawed with the NFP revisions release, but was unable to find a straightforward way. Despite trading in the red, the daily chart shows that it continues to post higher highs and higher lows, which maintains the risk skewed to the upside. A near-term corrective decline is on the cards, with immediate support around the 1.1700 mark.”
Bednarik adds: “Once below the aforementioned support, EUR/USD sellers could test buyers’ determination at around 1.1650, a comfort zone for the pair. Clear slides below the latter expose the 1.1600-1.1610 region. Beyond the resistance at 1.1780 (weekly peak), the year’s top comes next at 1.1830. Additional advances are unlikely with the PPI release, but can occur with CPI data on Thursday. In such a case, 1.1900 is the next level to watch.”
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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FXStreet Team
FXStreet
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