Anyone looking for definitive signs of peak inflation in Wednesday’s US producer price data was likely disappointed.
Although the 12-month advance on the headline final demand gauge was the coolest in a year, the 8.7% print would still look wholly anomalous in any other context.
August’s drop in PPI was entirely attributable to another big decline in prices for final demand goods which, in turn, was down to a 12.7% decrease in the index for gasoline.
Optimists will look at the figure (above) and see a light at the end of the tunnel. I’d suggest it’s a train.
Final demand excluding food and energy rose 0.4% MoM and 7.3% YoY. Both of those prints were hotter than expected. Less food, energy and trade services, the YoY increase on core was 5.6%, the lowest since June of 2021, but still 2.5 percentage points above the highest pre-pandemic 12-month print.
Note that the final demand services gauge rose from July, and at double the prior month’s pace (figure below).
On an unrounded basis, it was the 20th monthly increase in a row.
You could (and many will) point to a second consecutive monthly decline in the overall (i.e., total, headline) final demand index as evidence that pipeline pressure is perhaps abating, and maybe you’d be right. After all, prior to the last two months, the index hadn’t seen a MoM drop since April 2020’s record plunge.
Still, I’d reiterate that the 6% monthly drop in the final demand energy gauge looked to be the proximate cause of the relatively favorable top line figures. It’d be foolish to assume energy prices will continue to cooperate. Even if they do, underlying inflation (e.g., in the services sector) doesn’t appear to be moderating in a material or uniform way, even as the share of the consumer price basket suffering from annual gains of 4% or more actually fell in August to 70.1% from 71.8% in July and 74.8% in June.
Bottom line: PPI won’t change any minds. If anything, it just reinforced the notion that any relief seen in the near-term on the back of falling gas prices is “transitory” until proven otherwise.
Read more: Another Disastrous US Inflation Report
Perhaps the best that can be said of today’s data is that it has prevented an accelerating equities slide (at least for the moment).
Probably eliminates a 100bps move next week. That said, the Fed still has work to do if it wants to get CPI back down to the 2%-3% range.
Decent print. Jury out though.