Producer Price Index Shows Unexpected Pressure

There's unexpected pressure in the producer price report but not very much. PPI-FD came in unchanged in August vs expectations for a 0.2 percent decline while less food & energy came in at plus 0.3 percent which is just outside the high estimate. The less food, energy & trade services reading edged 0.1 percent higher as expected. Trade services posted a large 0.9 percent gain tied to a jump in apparel and footwear. Fruits shot higher in the month with residential natural gas also up. Of note, the less food & energy reading has now posted three straight outsized gains of 0.3 percent. Year-on-year, the headline reading is minus 0.8 percent while the two core readings show some pressure, at plus 0.9 percent and plus 0.7 percent respectively. Though still low, the direction of this report does support the hawks, at least to a degree, at next week's FOMC. Next inflation report will be the consumer price index on Wednesday, which is also the first day of the FOMC's two-day meeting.

Recent History Of This Indicator: Producer prices - final demand is expected to post a 0.2 percent decline in August vs a July rise of 0.2 percent. Negative pull is also expected for the ex-food ex-energy reading, to plus 0.1 percent from plus 0.3 percent, and the ex-food ex-energy ex-services reading, to plus 0.1 percent from plus 0.2 percent. Energy prices fell 0.6 percent in the July report and are certain to post another decline in the August report. Fed policy makers had been waiting for the prior effects of the oil collapse to fade and for price trends to improve, but that talk is long dead.