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Wednesday, September 12, 2018

Producer Price Index Subdued

Wages may have shown inflationary pressures in last week's employment report but prices at the base of the supply chain remain very subdued. Headline producer prices edged 0.1 percent lower in August as did the ex-food and ex-energy reading with ex-food, ex-energy and ex-trade services up only 0.1 percent. All of these readings are either at or below the low end of Econoday's consensus ranges.

Foods fell 0.6 percent in the month to outmatch a 0.4 rise in energy. Trade service prices posted a very sharp decline of 0.9 percent that follows a 0.8 percent drop in July. Year-on-year, this reading is only 0.8 percent higher and points to a reversal of pressures earlier this year at retailers and wholesalers.

Other readings include only a 0.1 percent rise in construction prices that belies complaints out of the sector over rising costs. Passenger cars did show pressure, up 0.7 percent in the month, but not light trucks which slipped 0.1 percent. Personal consumption measures, which offer hints at the next set of PCE price data, are flat, unchanged overall and also when excluding food and energy.

Tariff-impacted areas do continue to show pressure with steel mill products up 2.6 percent in August for a year-on-year increase of 18.6 percent, though aluminum mill shapes declined, down 2.1 percent on the month but still up 14.0 percent on the year. Fabricated metal products rose 2.2 percent in August for a yearly gain of 15.7 percent.

But metals aside, this report is remarkably benign and includes outright retreats in the overall year-on-year rate, down 5 tenths overall to 2.8 percent and down 4 tenths less food and energy to 2.3 percent. Today's results will not raise any concerns over tomorrow's consumer price report where only a 0.2 percent rise in the core rate is expected. Risks over inflation appear to be concentrated in the labor market and not the general economy, at least yet.

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