U.S. headline producer prices fall sequentially in August, but pace remains healthy

U.S. headline producer prices dropped in August. On a sequential basis, final demand producer prices fell 0.1 percent, as compared with consensus expectations of a 0.2 percent rise. Highly volatile components such as food and trade margins mainly drove the fall.

Stripping food, energy and trade producer prices rose modestly by 0.1 percent sequentially. On a year-on-year basis, total PPI inflation decelerated to 2.8 percent from July’s 3.3 percent, owing to the soft August report. Core PPI, which excludes food, energy and trade, rose 2.9 percent year-on-year, accelerating a bit from the previous month and remaining in line with gradually rising core pipeline price pressures.

Personal consumption PPI remained the same on the month and rose 2.7 percent year-on-year. Stripping food and energy, personal consumption PPI moved sideways and decelerated a bit to 2.2 percent year-on-year.

The softness in the headline measure and in the core measure suggests some downside risks to the expectations that August consumer price inflation will rise 0.3 percent sequentially and 2.8 percent year-on-year, noted Barclays in a research report. Core inflation is expected to have risen 0.2 percent sequentially and 2.3 percent year-on-year.

In spite of today’s weak PPI report, the annual rate inflation for core PPI and CPI continues to be healthy and shows that price pressures are strengthening further as the U.S. economy continues to expand and labor markets rebound, stated Barclays.

Delving into details, total goods prices did not rise in the month, with a fall in food prices being countered by increasing energy prices and a sideways move in the other component. Goods excluding food and energy also remained stable in August, decelerating from its recent solid trend. Services PPI dropped modestly by 0.1 percent, owing to a sharp fall of 0.9 percent in trade services and a 0.6 percent decline in transportation and warehousing. Pipeline price pressures were generally weak in the services sector, with the transportation, warehousing and government components all falling.

At 14:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was neutral at -20.2332. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex