Economic Report: Wholesale costs falls for second month in a row due to cheaper gas but U.S. inflation still intense


The numbers: The cost of U.S. wholesale goods and services fell 0.1% in August largely due to cheaper gasoline, but there were also scattered signs of easing inflation even as persistent price pressures coursed through the main arteries of the economy.

The back-to-back drop in the product price index was the first since early 2020, just as the pandemic was emerging globally. Economists polled by The Wall Street Journal had forecast a 0.1% decline.

The increase in wholesale prices over the past year slowed to 8.7% from 9.8% in the prior month.

Still, economists don’t expect the recent decline in wholesale costs to be sustained, especially if gas prices level off as it appears.

A separate measure of wholesale prices that strips out volatile food and energy costs rose by 0.2% in August, the government said Wednesday. That was a touch higher than expected.

The increase in these so-called core prices over the past year also slowed to 5.6% from 5.8%.

Just a year and a half ago, however, prices were rising at a less than 2% pace.

The change in wholesale prices tend to foreshadow changes in consumer inflation. A day earlier, the government’s August report on consumer prices showed inflation still running rampant through the economy.

Big picture: High inflation isn’t going to subside quickly — it’s spread too far and wide through the economy and won’t be easy to eradicate.

The Federal Reserve is trying to tame inflation by sharply raising interest rates and another big rate hike is coming next week, economists say.

The central bank is between a rock and a hard place. If the Fed has to raise rates quite high to vanquish inflation, it could also trigger the second recession since the onset of the pandemic in 2020.

Key details: The cost of goods sank 1.2% in August, with three-quarters of the decline reflecting lower gas prices.

In a bit of good news, wholesale food prices were unchanged last month. Yet the cost of food at grocery stores has risen at the fastest rate since 1979, so it would take a sustained period of price declines to offer consumers some relief.

The cost of services, meanwhile, rose 0.4% in August. Service inflation has risen sharply in the past year and is harder to unwind, making it a potential troublespot.

Inflation further down the pipeline gave off mixed signals.

The cost of partly finished goods fell sharply in August if food and energy are excluded. These prices have tapered off since May and offer another piece of evidence that inflation might be easing.

Yet wholesale prices of raw materials excluding food and energy rose 1% after three straight declines.

Looking ahead: “While a move in the right direction, producer costs continue to rise at a rapid pace,” said chief U.S. economist Rubeela Farooqi of High Frequency Economics.  

Market reaction: The Dow Jones Industrial Average DJIA, -0.18% and S&P 500 SPX, -0.11% were set to open slightly higher in Wednesday trades. Both indexes suffered 4% declines on Tuesday after another dismal report on consumer price inflation.

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