Treasury yields declined in the wake of the August report, so the odds for a 0.5% key cut on September 17th are increasing. The Department of Labor announced on Wednesday that the PPI declined 0.1% in August and July was revised down to a 0.7% increase. In the past 12 months, the PPI has risen 2.6%, which is substantially below economists’ consensus estimate of a 3.3% increase. Interestingly, the PPI has been negative in three of the past six months.
Excluding food and energy, the also declined 0.1% in August, which was also far below economists’ consensus estimate of a 0.3% increase. Wholesale energy costs declined 0.4%. Core wholesale goods prices, excluding food and energy, rose 0.3% in August. There was a 1.7% surge in trade services, but this is a new indicator that has been problematic. Wholesale service costs declined 0.2% in August, which was a pleasant surprise.
Meanwhile, China’s National Bureau of Statistics announced on Wednesday that its declined 2.9% in August compared to the same month a year ago. This was an improvement over July’s 3.6% annual pace, but China has been in the midst of a deflationary spiral since May of 2022, so deflation is expected to persist.
Furthermore, China’s consumer price index () declined 0.4% in August compared to the same month a year ago, which was the first time the annual CPI has been negative in the past three months. So, with deflation on both the wholesale and consumer levels, China’s deflationary tailspin persists.
I am hoping that the deflation we are importing from China will continue to show up in the wholesale goods prices and that shelter costs (owners’ equivalent rent) will help the CPI fall within the Fed’s inflation target. Lower crude oil prices should also help to lower both wholesale and consumer inflation. Interestingly, OPEC+ agreed to boost its crude oil production by 137,000 barrels per day in October, despite a growing supply glut.