Producer Prices Unexpectedly Soar 1.6% In August, Deepening Inflation Worries, Rate Hike Speculation

The U.S. economy is witnessing a revival of inflationary concerns as producer inflation takes a leap, signaling that the era of widespread price declines may be a thing of the past.

According to the latest report from the U.S. Bureau of Labor Statistics (BLS), the Producer Price Index (PPI) recorded a year-on-year increase of 1.6% in August 2023. This jump, up from 0.8% in July, has left economists surprised, as it exceeded their consensus estimate of 1.2%.

On a monthly basis, the PPI accelerated by 0.7%, sharply higher than the 0.3% observed in July, and well above expectations of 0.4%.

While the general PPI saw a robust increase, the core PPI, which excludes the volatile energy and food sectors, edged down from 2.4% year-on-year to 2.2%, in line with estimates.

The monthly core PPI increase was 0.2%, compared to 0.3% in July, and in line with estimates of 0.2%.

Just a day before the PPI release, the BLS reported that the Consumer Price Index (CPI) for August surged to 3.7% year-on-year, up from 3.2% in July and surpassing the 3.6% estimate.

Dollar Soars, Markets Await Next Week’s FOMC

The twin surge in both producer and consumer inflation in August suggests that the U.S. economy is grappling once again with an upward price pressures momentum.

The U.S. dollar index (DXY), monitored through the Invesco DB USD Index Bullish Fund ETF UUP, responded positively, gaining 0.4%. This boost was further supported by a “dovish hike” from the European Central Bank, which indicated that interest rates may have reached their highest point.

The Federal Reserve is set to convene next Wednesday to decide on interest rates, and these fresh inflation figures could weigh heavily on their decision-making process.

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