Wholesale Inflation Dips in August, Largely on Drop in Energy Costs | Economy

Wholesale inflation fell 0.1% in August, slightly better than expected, as the decline in gasoline prices provided a boost to falling prices, the Bureau of Labor Statistics reported on Wednesday.

The producer price index, however, proved a better report with the overall index rising 8.7% for the 12 months, compared to estimates of 8.8% and 9.8% in July. Excluding food and energy, the core index rose 0.2% after a 0.1% increase in July. However, that was below expectations of a 0.3% rise.

It comes one week before the Federal Reserve decides on how much to raise interest rates, with expectations for another 75 basis point increase after a similar hike in July.

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Markets will be on edge after Tuesday’s rout of 1,200 points for the Dow Jones Industrial Average as traders reacted to the hotter-than-expected report on consumer inflation – in particular, the news that grocery prices had risen 13.5% in the past 12 months, the largest increase since 1979, unnerved investors.

Dow futures were essentially unchanged after the report’s release.

“The August CPI is the last important data release before the next FOMC meeting on September 20-21,” BCA Research wrote Wednesday morning. “Stubbornly elevated inflation coupled with exceptionally robust labor market conditions cements the case for another 75bp hike next week.”

However, “Our colleagues have been arguing that these dynamics carve an easy path for inflation to moderate to an underlying 4%-5% range,” BCA noted. “However, bringing inflation down further to the 2% target will require the Fed to engineer a downturn, creating a headwind for US equities over a cyclical investment horizon.”

Separately, in a seemingly surprising note, Morning Consult reported Wednesday that its monthly consumer sentiment survey rose 5.5% in August, its largest improvement since March 2021.

“Consumer confidence is breaking out of a yearlong slump, thanks in large part to falling gas prices,” said Jesse Wheeler, economic analyst at Morning Consult. “Improving sentiment will support consumer spending, which has faced headwinds from rapidly rising prices and monetary tightening by the Federal Reserve.”

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