Producer Price Index (PPI) Drops to 1.7% in August

The Producer Price Index (PPI) measures the average change over time in the prices that domestic producers receive for their goods and services. Also, it’s a key indicator of inflation at the wholesale level, reflecting price changes from the perspective of the seller rather than the consumer.

However, the PPI is compiled from thousands of indexes that measure producer prices by industry and product category. It is published monthly by the U.S. Bureau of Labor Statistics (BLS). Unlike the Consumer Price Index (CPI), which measures the prices paid by consumers, the PPI focuses on the prices received by producers.

The Producer Price Index (PPI) is divided into several types to capture different aspects of price changes in the economy. Here are the main types:

• Industry Indexes: These measure price changes within specific industries, such as manufacturing, agriculture, and mining. They track the prices received by producers for their output within these industries.
• Commodity Indexes: These focus on the price changes of specific commodities, regardless of the industry that produces them. Examples include indexes for crude oil, steel, and grains.
• Final Demand-Intermediate Demand (FD-ID) Indexes: This system categorizes products and services based on their stage in the production process.
• Final Demand Indexes: Measure price changes for goods, services, and construction products sold for personal consumption, capital investment, government, and export. 
• Intermediate Demand Indexes: Track price changes for goods, services, and construction products sold to businesses as inputs to production, excluding capital investment.

These different types of PPIs provide a comprehensive view of price changes across various sectors and stages of production.

August Producer Price Index

The Producer Price Index increased 0.2% in August, the U.S. Bureau of Labor Statistics reported today. As you can see in below table, final demand prices were unchanged in July and rose 0.2 percent in June. Also, the PPI index for the 12 months ended in August advanced 1.7%

The August rise in the index for final demand can be traced to a 0.4% increase in prices for final demand services. The index for final demand goods was unchanged.

Prices for final demand for less foods, energy, and trade services advanced 0.3% in August, the same as in July. For the 12 months ended in August, the index for final demand for less foods, energy, and trade services moved up 3.3%.

Image Source: U.S. Bureau of Labor Statistics

Impacts of August PPI Data On Market

The producer price index increased more than anticipated in August, yet this didn’t prevent the index from securing its fourth consecutive day of gains.

The S&P 500 pressed higher on Thursday, spinning another impressive turnaround following more mixed data on the inflation front. S&P500 added 0.8% on the day but not without a slump early on in the session. Traders dumped stocks after a hotter-than-expected producer price index (PPI) flashed some warning signs.

With a quiet Friday session and no major news expected, both money managers and retail traders are already looking ahead to the Federal Reserve’s press conference on September 18. This could be the most significant central bank announcement of the year, as the Fed is anticipated to cut interest rates by 25 basis points, or possibly even 50 basis points. 

Traders see a 45% chance for a 50-basis-point reduction on Sept. 18 meet and 55% odds for a 25 bp cut.

Also, Gold prices climbed on Thursday as traders flocked to the precious metal in anticipation of the Federal Reserve cutting interest rates next week, following recent U.S. economic data. Gold rose to 2570 per troy ounce (an ATH), buoyed by a weaker U.S. dollar and solidifying expectations of a 25 basis-point rate cut. 

Gold’s trajectory remains very bullish with a lot of uncertainty on the geopolitical and economic front.