Producer Prices Declined in August, Undercutting Tarifflation Fears
A Report indicates that companies are not passing through any higher costs associated with tariffs to consumers.
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Prices paid to U.S. businesses unexpectedly fell in August, putting pressure on the Federal Reserve to cut interest rates and undercutting claims that the Trump administration’s tariffs would cause inflation to pick up.
The producer price index for final demand declined 0.1 percent from a month earlier and July’s figure was revised down, according to a Bureau of Labor Statistics report. Compared with a year ago, the PPI is up 2.6 percent.
Economists had forecast producer prices would rise by 0.3 percent for the month and 3.3 percent over the past 12 months. The July jump in producer prices was revised down from a 0.9 percent increase to a 0.7 percent increase.
The report indicates that companies are not passing through any higher costs associated with tariffs to consumers. Instead, businesses appear to be absorbing much of the tariffs through tighter margins or passing back tariff costs to foreign producers.
Goods prices inched up 0.1 percent in the month and services prices declined by 0.2 percent. Energy prices declined by 0.4 percent for the month, led by a sharp 1.8 percent decline in natural gas utility prices. Food prices climbed 0.1 percent, as increases in beef and veal prices more than offset the decline in vegetable and egg prices.
Excluding volatile food and energy prices, so-called core producer prices also declined 0.1 percent. Goods prices excluding food and energy rose by 0.3 percent. The government said a major factor in the August increase for final demand goods was a 2.3 percent increase in the price of tobacco products.
PPI for final demand measures the prices paid to American businesses for goods and services. It includes sales to consumers, households, businesses, and foreign purchasers, a broader array of customers than is measured by the consumer price index.
Because it is focused on prices paid to U.S. businesses, the PPI index excludes prices of imported goods but includes export prices. It also excludes sales taxes. Many economists expected tariffs to show up indirectly in PPI if businesses passed on higher costs of imported components and materials to their customers. That does not appear to be happening
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