The US Bureau of Labor Statistics released the Producer Price Index (PPI) on August 13. It showed an increase of 2.2% for July compared to the same period last year. This was below the previous month’s increase of 2.7% and below market expectations of 2.3%. The increase from the previous month was 0.1%, which was also below the previous month and market expectations of 0.2%.

Broken down by component, final demand for goods rose 0.6% month-on-month, with food and energy prices rising 0.6% and 1.9% respectively. However, final demand for services fell 0.2% month-on-month, with trade services – which reflect the margins of wholesalers and retailers – falling 1.3%, offsetting gains in food and energy. Excluding food, energy and trade, core PPI recorded a 3.3% year-on-year increase, up 0.1% month-on-month, while the month-on-month increase was 0.3%, up 0.2% month-on-month.

Overall, inflationary pressure in the US continues to ease, service costs are declining for the first time this year. This development allows the Federal Reserve to focus more on the labor market and gives it additional flexibility and leverage in determining the magnitude of future rate cuts. Although the market has largely priced in a rate cut at the September FOMC meeting, there remains considerable debate over whether the cut will be 25 or 50 basis points, with the final decision likely to depend on upcoming CPI and employment data.