Inflation painted a mixed picture for the nation in August, with the headline Producer Price Index showing a gain of 0.3%, which was a bit larger than had been forecast, but with the so-called core rate of producer prices, which backs out the volatile food and energy components, showing no increase at all. It is this latter metric that is most important to the Federal Reserve.
All told, as noted, the PPI gained 0.3% in August. Expectations had been for an uptick of just 0.2%. Higher energy prices were the biggest contributor to the higher nominal or headline number. Energy costs rose 0.8% last month, as the threat of military action by the West against Syria had served to notably lift oil prices. At the same time, food prices increased by a solid 0.6% in August, after being unchanged in July. Food costs were lifted by strong increases in the cost of processed poultry, fresh and dry vegetables, and soft drinks.
Meanwhile, the core PPI number, which, as noted, was unchanged last month, had risen for nine consecutive months before August, but never by more than 0.2% in any of those months. This suggests that inflation remains quite tame, and should not be a factor in next week's FOMC meeting to be held by the Federal Reserve. It seems as though the central bank's dual mandate of fostering maximum employment and pricing stability, is not a problem at all on the latter count. Most Fed efforts, therefore, have been focused on the former front, where the situation, albeit better than it had been, is still far from idyllic.
That said, even though inflation is still tame, and the job market remains sluggish, the Fed will probably not be swayed from starting to pare its bond-buying program later this month, if that is its intention, by this data.
Going back to the headline PPI number, such prices were up by 1.4% on an August-to-August matchup. In July, the year-to-year increase had been 2.1%. Finally, there appears to be little inflation at the wholesale level as we go further back into the processing stage. So, while finished goods prices increased by the aforementioned 0.3% last month, prices were unchanged at the intermediate stage and off by a solid 2.7% for crude goods.
Taken as a whole, therefore, this was a good report, and one that should keep the Fed supportive on the monetary side, even if it does opt to taper gingerly next week. At the time of this article's writing, the author did not have positions in any of the companies mentioned.