US supply chain prices unexpectedly fell 0.1% in August

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WASHINGTON (AP) — U.S. producer prices fell unexpectedly last month, dropping 0.1% from July.

The Labor Department reported Wednesday that its producer price index — which captures inflation in the supply chain before it hits consumers — showed that wholesale inflation decelerated in August after advancing 0.7% in July. Wholesale services prices fell 0.2% from July on smaller profit margins at retailers and wholesalers, which might be a sign that those companies are absorbing the cost of President Donald Trump’s sweeping taxes — tariffs — on imports.

Compared with a year earlier, producer prices rose 2.6%.

Excluding volatile food and energy prices, so-called core producer prices also fell 0.1% from July and were up 2.8% from a year earlier.

The numbers were lower than economists had forecast. Trump's tariffs were widely expected to send prices higher, but so far their impact has been muted. "The big picture remains that tariff effects are feeding through only slowly,'' economist Stephen Brown of Capital Economics wrote in a commentary.

“Wholesalers and retailers have been slow to pass on the cost of tariffs,” said Bill Adams chief economist at Comerica Bank. "This could be due to foreign suppliers discounting to maintain market share, to weak demand in the U.S., or to businesses waiting to pass on costs until they have clarity about where tariff rates settle out.'' Still, Adams noted that some prices of imported products rose, pointing to a coffee prices — up 6.9% from July and 33.3% from a year earlier.

The wholesale price report came out day before the Labor Department releases its consumer price index. The CPI is expected to show that consumer price inflation picked up slightly last month, rising 0.3% from July, an uptick from a 0.2% increase the month before. Compared with a year earlier, consumer prices are expected to have risen 2.9% in August, up from a 2.7% year-over-year increase in July.

Wholesale prices can offer an early look at where consumer inflation might be headed. Economists also watch it because some of its components, notably measures of health care and financial services, flow into the Federal Reserve’s preferred inflation gauge — the personal consumption expenditures, or PCE, price index.

The drop in producer prices makes it even more likely that the Fed will cut its benchmark interest rate next week for the first time this year.

Trump has been pressuring Fed to cut rates, repeatedly saying Fed Chair Powell has waited too long to make the move. “Just out: No inflation!!! ‘Too Late’ must lower the RATE, BIG, right now,'' the president posted on social media just after the wholesale inflation report landed Wednesday. ”Powell is a total disaster, who doesn't have a clue.''

There are increasing signs that the economy is weaker than previously thought. On Tuesday, the Labor Department reported that employers had added 911,000 fewer jobs than originally reported in the 12 months that ended in March.