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U.S. Producer Prices Index Drops On Lower Gasoline Prices

The U.S. Bureau of Labor Statistics has released a report showing the second consecutive monthly drop in producer prices, prompted by steadily declining gasoline prices. 

The Producer Price Index (PPI) shows final demand dropping by 0.1% in August, compared with a 0.4% drop in July. 

Overall, the latest PPI shows a 1.2% drop in prices for goods. 

That drop in prices for goods is attributed to continually falling gasoline prices, which have dropped nearly 13%. 

The national average per gallon of gas on Monday dropped to $3.703, according to AAA, down from $3.959 a month ago, and closing in on the year-ago average of $3.177. 

Wednesday’s PPI release is contributing to rising optimism that inflation is easing. 

The index also suggests that some supply chain issues are improving. 

Reuters cited FWDBONDS chief economist Christopher Rupkey as saying that the PPI release was a “bit of good news that the economy's supply chain headwinds are starting to diminish”.

"While inflation isn't completely contained, there is hope that the diminished pressures on PPI goods prices will lead to less inflation in the future for the goods sitting on store shelves that consumers buy,” Rupkey told Reuters. 

The index release comes on the heels of the Labor Department’s inflation report on Tuesday, which showed prices rose 8.3% in the past 12 months through August. While this was down from 8.5% in July–again due to falling gasoline prices, while food, housing and medical care rose significantly–the report missed economists’ expectations. 

The United States saw Inflation peak at 9.1% in June.

Wall Street responded with the biggest declines in over two years, and expectations are now that the Federal Reserve will hike interest rates by another 75 basis points next week.  

By Charles Kennedy for Oilprice.com

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