U.S. August PPI - Near consensus, but still firmer than the Fed would like
August PPI is in line with expectations, up 0.4% overall, and a moderate 0.2% ex food and energy. A 0.3% rise ex food, energy and trade suggests underlying trends are still a little firmer than the Fed would like. Initial claims at 206k versus 207k and continued claims at 1.774m versus 1.775m are virtually unchanged and suggest a very stable labor market.
In the PPI, food saw a marginal 0.1% increase after two straight significant declines and does not appear to be a concern. Energy however picked up by 4.2% after two straight declines and recent developments in the Middle East suggest more may be to come.
Goods less food and energy increased by 0.4% after two straight gains of 0.2%. We had seen the slower gains of June and July as signaling a peaking of the tariff impact. Tariffs against Canada may be having some impact, though we would have expected that to be felt in September rather than August.
Services rose by only 0.1% with all the strength coming in transport and warehousing which is sensitive to Middle East developments. The volatile trade component fell by 0.2% and other services, the largest category, was unchanged after a strong 0.5% rise in July.
Yr/yr data ex food, energy and trade was stable but firm at 4.7%, but the ex food and energy pace picked up to 4.6% from 4.3% and while overall PPI rise to 5.4% from 4.8%.
CPI data is more important than PPI for the FOMC but the PPI will not be ignored, and shows inflationary pressures higher than the Fed would like.
Intermediate PPI data also shows some inflationary pressure. Services rose by 0.3% on the month. Processed goods rise by 1.8%, 0.5% ex food and energy, and unprocessed goods rose by 1.1%, 2.1% ex food and energy.