Core wholesale prices excluding volatile food and energy prices rose higher than expected, further dimming hopes for a 50-basis point interest rate cut next week.
The US government’s Producer Price Index — which tracks the cost of goods and services for domestic producers — rose 0.2% last month, in line with economists’ expectations, according to a poll by The Wall Street Journal.
However, wholesale prices excluding volatile food and energy — a metric closely watched by economists to gauge underlying inflation trends — increased 0.3% in August from a month earlier, slightly above expectations of 0.2%.
US stock indexes remained little changed Thursday morning. The Dow Jones Industrial Average dipped less than 1%. S&P 500 and Nasdaq 100 each rose less than 1%.
Jobless claims data released Thursday matched expectations, with 230,000 filing for unemployment as the nation’s employment market continues to cool.
Core CPI data — an inflation measure that excludes volatile food and energy — released Wednesday rose 3.2% from a year earlier and 0.3% on a monthly basis.
The monthly figure, driven by stubbornly high housing costs, was slightly above expectations for a 0.2% rise.
After the core inflation data, traders now see an 87% chance of the Fed cutting interest rates by 25 bps when it meets on Sept. 17-18, according to CME’s FedWatch Tool. It would be the first rate cut since March 2020.
The unadjusted increase in wholesale prices over the past year dipped to 1.7% from 2.1% in the month before, reaching its lowest level in six months, according to the US Bureau of Labor Statistics.
The 12-month rate inched up to 3.3% from 3.2%.
The price of services rose 0.4% in August, which left the 12-month increase at 2.7% — close to pre-pandemic levels.
“The August PPI data provide more encouragement for the Fed that inflation has been tamed,” Paul Ashworth, chief North American economist at Capital Economics, told MarketWatch.
Federal Reserve Chair Jerome Powell has hinted that interest rate cuts could come in September if inflation continues to ease and the job market continues to cool.
“The time has come for policy to adjust,” Powell said in late August.
The central bank has maintained its benchmark overnight interest rate in the current 5.25%-5.50% range for a year, having raised it by 525 basis points in 2022 and 2023.
Investors have been hoping the Fed will issue a highly-anticipated 50-basis point cut — above the usual 25-basis point cut — on easing inflation data and a cooling job market.
The Fed’s aggressive post-pandemic interest rate hikes in 2022 and 2023 damped demand, which stunted hiring and led to a labor market slowdown.
Though economists forecast the US would face a recession after the series of rate hikes, easing inflation spurred hopes that the Fed will be able to deliver a soft landing.
The Fed has been holding steady on its goal to bring the inflation rate down to 2%, but investors had hoped August’s inflation data would push them to issue the cuts during their meeting next week.
