🔥 US August PPI year-over-year rose 5.4%, and rate-hike expectations at the Federal Reserve suddenly heated up
Inflation on the production side in the US in August again came in above expectations, with inflation pressure not showing any clear easing. After the data was released, rate-hike expectations surged sharply—the probability of a rate hike in September was pushed above 70%, and the first hike in October has been fully priced in.
📊 Key data at a glance
PPI YoY 5.4% (forecast 5.3%, prior 4.7%), up 0.4% month-over-month, in line with expectations
Core PPI YoY 4.6% (prior 4.2%); Core PPI MoM 0.2%, slightly below the forecast of 0.3%—this is the only mild signal in this report
After the data came out, the market reacted quickly: Nasdaq 100 futures fell by more than 1%, the US dollar index surged to 99.00, the 10-year US Treasury yield rose to 4.890%, and spot gold dipped in the short term.
⚡ Energy leads this rebound In August, the prices of goods in final demand rose 1.1% month-over-month, the biggest monthly increase since May. More than three-quarters of the rise came from energy—energy sub-items jumped 4.2% MoM. Diesel prices surged 24.1% in the month, accounting for more than one-third of the overall goods increase. Gasoline, jet fuel, and heating oil also moved higher in tandem. The rise in crude oil closely matched the PPI energy sub-index, confirming that tighter Middle East geopolitical conditions are already feeding through to upstream production costs in the US.
🧊 Service-sector inflation cools instead Unlike goods, final-demand service prices rose only 0.1% MoM—the lowest since May. Transportation and warehousing costs rising 2.3% MoM was the main support, but trade services prices fell 0.2% MoM. Retail fuel profit margins plunged 11.3%, putting downward pressure on overall service prices. Worth noting is that portfolio management costs declined as stock-market moves stalled—this sub-item will directly affect the calculation result for core PCE.
🎯 CPI becomes a key variable before the September rate decision PPI is a leading indicator of price pressure at the production level. Its continued expansion year-over-year suggests upstream costs have not eased and may gradually pass through to the consumer side. Based on the historical regression relationship between PPI and CPI, August CPI is expected to rise 0.4% month-over-month, accelerating versus the prior month. With the CPI release coming on Friday, some Fed officials have already commented—this week’s signals from the two reports may determine the interest-rate decision at the September 15–16 meeting.
📅 Big news also on September 30: PCE adjustments BEA will release August PCE data on September 30, and will simultaneously adjust the price-estimation methods for categories such as legal services, computer software, and investment advisory services. Several economists expect this adjustment to result in a lower PCE reading, and the market is closely watching.
Inflation on the production side in the US in August again came in above expectations, with inflation pressure not showing any clear easing. After the data was released, rate-hike expectations surged sharply—the probability of a rate hike in September was pushed above 70%, and the first hike in October has been fully priced in.
📊 Key data at a glance
PPI YoY 5.4% (forecast 5.3%, prior 4.7%), up 0.4% month-over-month, in line with expectations
Core PPI YoY 4.6% (prior 4.2%); Core PPI MoM 0.2%, slightly below the forecast of 0.3%—this is the only mild signal in this report
After the data came out, the market reacted quickly: Nasdaq 100 futures fell by more than 1%, the US dollar index surged to 99.00, the 10-year US Treasury yield rose to 4.890%, and spot gold dipped in the short term.
⚡ Energy leads this rebound In August, the prices of goods in final demand rose 1.1% month-over-month, the biggest monthly increase since May. More than three-quarters of the rise came from energy—energy sub-items jumped 4.2% MoM. Diesel prices surged 24.1% in the month, accounting for more than one-third of the overall goods increase. Gasoline, jet fuel, and heating oil also moved higher in tandem. The rise in crude oil closely matched the PPI energy sub-index, confirming that tighter Middle East geopolitical conditions are already feeding through to upstream production costs in the US.
🧊 Service-sector inflation cools instead Unlike goods, final-demand service prices rose only 0.1% MoM—the lowest since May. Transportation and warehousing costs rising 2.3% MoM was the main support, but trade services prices fell 0.2% MoM. Retail fuel profit margins plunged 11.3%, putting downward pressure on overall service prices. Worth noting is that portfolio management costs declined as stock-market moves stalled—this sub-item will directly affect the calculation result for core PCE.
🎯 CPI becomes a key variable before the September rate decision PPI is a leading indicator of price pressure at the production level. Its continued expansion year-over-year suggests upstream costs have not eased and may gradually pass through to the consumer side. Based on the historical regression relationship between PPI and CPI, August CPI is expected to rise 0.4% month-over-month, accelerating versus the prior month. With the CPI release coming on Friday, some Fed officials have already commented—this week’s signals from the two reports may determine the interest-rate decision at the September 15–16 meeting.
📅 Big news also on September 30: PCE adjustments BEA will release August PCE data on September 30, and will simultaneously adjust the price-estimation methods for categories such as legal services, computer software, and investment advisory services. Several economists expect this adjustment to result in a lower PCE reading, and the market is closely watching.