U.S. August producer prices weaker than expected, likely to rebound gradually

U.S. producer prices came in weaker than anticipated in August as drop in the volatile energy, trade and food categories countered the rises throughout core price components. The country’s headline producer price inflation remained unchanged in August, as compared with consensus expectations of 0.1 percent rise. Excluding energy, food and trade, PPI was up 0.3 percent in sequential terms.

The goods component of PPI dropped 0.4 percent for the second consecutive month as energy and food prices weighed on the component. Stripping energy and food, prices of goods increased modestly. Meanwhile, services PPI rose a tad by 0.1 percent as drops in trade and transportation services were countered by increases in other categories.

U.S. producer price index came out of deflation in June after gradually firming in domestic pipeline price pressures and has remained stable at that level since, noted Barclays in a research report. Final demand excluding energy, food and trade services grew 1.1 percent on a year-on-year basis, accelerating mildly from July’s 0.8 percent.

The BLS, since 2011, has recorded PPI personal consumption, which tracks pipeline price pressures for CPI inflation. The PPI personal consumption was up 0.2 percent sequentially and remained flat on a year-on-year basis. PPI personal consumption excluding energy and food was up 0.4 percent month-on-month in August and 1.6 percent year-on-year.

In all, the PPI report implies certain persistent strengthening in core pipeline pressures; however, the headwinds from prices of food and energy continue. As the drag wanes from these volatile components, the PPI is likely to gradually rebound and feed through to a strengthening in consumer prices, according to Barclays.