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Flat PPI in US clouds Fed rate hike
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US producer prices were flat in August, pointing to benign inflation pressures that could weigh on the Federal Reserve’s decision whether to hike interest rates next week.
The unchanged reading in the Producer Price Index last month followed a 0.2 percent gain in July, the Labor Department said yesterday.
The drag on producer prices from lower crude oil prices and a strong dollar was offset by an increase in profit margins for apparel, footwear and accessories retailing.
In the 12 months through August, the PPI fell 0.8 percent after a similar decline in July. It was the seventh straight 12-month drop in the index.
Tame inflation despite a rapidly tightening labor market poses a dilemma for Fed officials who are contemplating raising rates for the first time in nearly a decade.
Though job openings are at a record high and the unemployment rate is at a seven-and-a-half-year low, wage gains have been lackluster. That has helped keep inflation well below the Fed’s 2 percent target.
The US central bank’s policy-setting committee meets on Wednesday and Thursday. The likelihood of a lift-off in the Fed’s benchmark overnight interest rate has been diminished by recent financial market volatility, which was sparked by concerns over China’s economy.
Economists polled by Reuters had forecast the PPI dipping 0.1 percent last month and falling 0.9 percent from a year ago.
Producer inflation is likely to remain muted in the near term after a report on Thursday showed import prices fell 1.8 percent in August, the largest drop since January.
The index for final goods fell 0.6 percent last month, with a 7.7 percent decline in gasoline prices accounting for nearly two-thirds of the drop. There also were drops in the cost of jet fuel, grains, light motor trucks, and iron and steel scrap.
Wholesale food prices rose 0.3 percent in August as the impact of an avian flu outbreak early this year continued to linger. Food prices slipped 0.1 percent in July.
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