Consumer price inflation will be reported tomorrow. In the meantime, this morning producer prices for August were reported. Normally I don’t pay too much attention to producer prices - and I won’t this month, either. But let me put that in some context.

In the past, when producer prices have outstripped consumer prices, that has meant that producers aren’t able to pass on the full amount of price increases to consumers.

Since the summer of 2024, final demand producer price gains have been approximately equal to consumer price gains. If producer prices were to spike even higher, we should expect that to show up in corporate profits within another quarter or two, and possibly even this quarter. And when corporate profits turn down, they think about scaling back hiring, and even layoff off workers.

July’s report suggested that such a spike in producer costs, probably engendered mainly by tariffs, but also by the weakened US$, has begun. This month there was a reversal, but it was largely driven by volatile food and energy prices, as well as an anomalous slight decline in services PPI.

Total final demand producer prices for finished goods increased 0.1% in August. Once food and energy are taken out, they increased 0.3%. Meanwhile producer prices for services declined -0.2%:
 

On a YoY basis, total PPI for goods are up 1.9%, and core goods ex-food and energy are up 2.8%, while PPI for services is up 2.9%, a deceleration from last winter when they peaked at 4.5%:
 

Raw commodity prices were unchanged for the month, while headline final demand PPI declined -0.1%. Consumer prices, which will be reported tomorrow, are also shown in red:
 

On a YoY basis, commodity prices are up 2.7%, the highest since January 2023, while headline final demand is up 2.6%, about par for the course for most of this year, vs. CPI, which was up 2.7% one month ago:
 

With the continuing upward pressure on commodity prices, in great part due to the relative depreciation of the US$, as well as to tariffs, producer prices later in the process are being squeezed. And their equivalence to CPI suggests profit margins are stagnating as well. 

Tomorrow we will get the more important CPI, and see if producers are continuing to “eat” most of the pressure, or whether it is being passed on to consumers. In the meantime, I expect food and energy prices to remain volatile, so I would pay more attention to the core PPI readings.

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