August PPI Rises 0.2%, Core PPI Exceeds Expectations at 0.3%

Producer Price Index Rises 0.2% in August 2024

The U.S. Bureau of Labor Statistics reported a 0.2% increase in the Producer Price Index (PPI) for final demand in August 2024, surpassing market expectations of 0.1%. The index remained flat in July, after a 0.2% rise in June. Over the past 12 months, PPI rose by 1.7% unadjusted, indicating ongoing inflationary pressures. Core PPI, excluding volatile food and energy prices, increased by 0.3%, exceeding the forecast of 0.2%.

Final Demand Breakdown

Final Demand Services

Prices for final demand services advanced by 0.4% in August, recovering from a 0.3% decline in July. A 0.3% increase in services excluding trade, transportation, and warehousing was the key driver. Additionally, trade margins rose by 0.6%, reflecting higher wholesale and retail profits. However, transportation and warehousing services saw a minor 0.1% decline.

Key contributors to the rise in services include a sharp 4.8% increase in guestroom rental prices. Other significant gains were observed in machinery and vehicle wholesaling, automotive fuels, and real estate loans. In contrast, prices for airline passenger services dropped by 0.8%, alongside declines in food and alcohol retailing.

Final Demand Goods

Prices for final demand goods remained unchanged in August after a 0.6% increase in July. Excluding food and energy, goods prices edged up by 0.2%, while food prices increased slightly by 0.1%. Energy prices fell by 0.9%, largely due to a steep 10.5% drop in jet fuel prices. Offsetting this were higher prices for non-electronic cigarettes, chicken eggs, and pharmaceuticals.

Unemployment Claims Show Slight Increase

Labor market data revealed a modest increase in initial unemployment claims for the week ending September 7, with 230,000 new claims—up by 2,000 from the previous week. The four-week moving average also increased slightly to 230,750, suggesting stable, yet manageable, conditions in the labor market. The insured unemployment rate held steady at 1.2%, with 1.85 million people receiving unemployment benefits, reflecting a minor uptick.

Market Forecast: Cautious Sentiment

The stronger-than-expected PPI data, particularly the rise in service prices, underscores persistent inflationary pressures. The rise in core PPI signals that inflation is spreading beyond energy, affecting a broader range of services. While the stability in goods prices and lower energy costs may offer some relief, the overall inflation picture remains concerning.

Market Outlook

Bearish in the short term, as inflation continues to challenge corporate margins and consumer purchasing power, particularly in the service sector. Labor market data suggests continued resilience, but inflationary risks remain elevated.