U.S. producer prices fell a seasonally-adjusted 0.9% in August, the U.S Labor Department announced Friday, as lower energy prices provided some hope that inflation at the wholesale level will moderate in the months ahead.
Economists surveyed by Bloomberg News had expected the August PPI index to fall 0.5%. Producer prices increased 1.2% in July, 1.8% in June, 1.4% in May, and 0.3% in April.
Meanwhile, the core rate, which excludes food and energy costs, increased 0.2%, the Labor Department said, in-line with the Bloomberg News 0.2% consensus estimate.
Economist Peter Dawson told BloggingStocks Friday the August PPI is a pleasant sight for a U.S. market and an economy that's grappling with a series of financial and economic hurdles.
"The report shows a pull-back in energy prices, which is welcome, as it's been the primary culprit in both wholesale and retail inflation," Dawson said. "If wholesale prices continue to trend lower, that will ease pressure businesses face to raise prices to keep pace with costs. Lower oil and gasoline prices will also provide a modest amount of stimulus to the U.S. economy, as it will increase consumer disposable income."
In August, raw material prices fell 11.9%, passenger car prices fell 0.3%, and light trucks declined 1.9%; meanwhile, capital equipment rose 0.1% and finished goods increased 0.2%.
Further, Dawson said that while it's important to remember "it's just one impressive PPI report, not a trend," the report is consistent with the U.S. Federal Reserve's forecast that inflation would moderate this year as the U.S. economy slows.
"The Fed expects lower energy prices to take the steam out of inflation in Q3 and Q4, and so far that prediction is on the mark," Dawson said. "If it continues, the trend will help the Fed keep interest rates low for a longer period of time to stimulate economic growth. And given other problematic economic fundamentals, the longer interest rates are low, the better."
Economic Analysis: The better-than-expected August PPI report is a welcome sight for the inflation-moderating reasons noted above. As a result of August's pleasant data, Dawson added that he expects the Fed to keep its benchmark interest rate, the Fed funds rate, the same at 2% when it meets Tuesday at 2:15 p.m. EDT.
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