The headline Producer Price Index increased by 0.7% in August, a slower pace than the 1.0% monthly gains in June and July, while the core index excluding food and energy rose by 0.6%, according to government data released Friday.
The lower numbers indicate that inflation, at least from the sellers’ perspective, has most likely passed its summer peak.
When wholesale and retail trade are excluded—the changes in margins received by wholesalers and retailers—from the core index, the producer price level for final demand showed an even lower gain at 0.3%, the lowest since last November, and down from 0.9% in July.
This decline suggests that firms are setting prices higher not only to deal with supply shortages but also to capitalize on the overwhelming consumer demand.
Prices for final demand goods—those goods that, for example, consumers buy in stores—rose by 1.0% on the month, a bigger jump compared to the 0.6% gain in July. This increase was largely driven by food prices, which were up by 2.9% on the month. Without food and energy, this number dropped back down to 0.6%.
Prices for services moved up by 0.7%, increasing for the eighth consecutive month. More than 30% of the August increase was from health, beauty and optical goods. The indexes for transportation, machinery and travel services also moved up in August.
The takeaway
Overall, we expect that this overall easing of pricing pressures will be reflected in next week’s Consumer Price Index, which will likely remain high, mostly because of food prices, but on a decelerated path as consumption has begun to slow at the same time.
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