Wholesale inflation mostly cooled last month in latest sign that price pressures are slowing

WASHINGTON — The rise in U.S. wholesale prices slowed largely last month, the latest evidence that inflationary pressures are easing enough to prompt the Federal Reserve to cut interest rates next week.

The Labor Department said Thursday that the producer price index — which tracks inflation before it reaches consumers — rose 0.2% from July to August. That was up from an unchanged reading a month earlier. But measured against a year ago, prices rose just 1.7% in August, the smallest increase since February and down from an annual increase of 2.1% in July.

Excluding food and energy prices, which fluctuate from month to month, so-called core wholesale prices rose 0.3% from July and 2.3% from August 2023.

Taken as a whole, last month’s wholesale price data suggests inflation is moving back toward the Fed’s 2% target. After peaking at a 40-year high in mid-2022, gasoline, grocery and auto prices are falling or rising at a slower pace than before the pandemic. On Wednesday, the government reported that its key inflation measure, the consumer price index, rose only 2.5% in August year-on-year, the smallest 12-month increase in three years.

The rise in key wholesale prices from July to August was driven by a 0.4% increase in the cost of services such as internet access and banking.

Goods prices were flat from July to August, with energy costs falling 0.9%. Wholesale food prices rose just 0.1% last month and are down 0.8% from a year earlier, a sign that supermarket prices, while still up almost 25% since the pandemic, are barely rising now.

The latest inflation figures follow a presidential debate Tuesday night in which former President Donald Trump attacked Vice President Kamala Harris over price increases that began months into the Biden-Harris administration as global supply chains ground to a halt and severe shortages of parts and labor emerged.

During the debate, Trump falsely characterized the magnitude of the rise in inflation when he claimed that inflation during the Biden-Harris administration was the highest “perhaps in the history of our country.” In 1980, inflation reached 14.6% — much higher than the peak of 9.1% in 2022.

The producer price index can be an early sign of where consumer inflation is headed. Economists also watch it because some of its components, notably health care and financial services, feed into the Fed’s preferred gauge of inflation: the personal consumption expenditures (PCE) index.

In the fight against high inflation, the Fed raised its key interest rate 11 times in 2022 and 2023, bringing it to a 23-year high. With inflation close to its target level, Fed policymakers are poised to cut its key interest rate from a 23-year high in hopes of boosting growth and employment.

A modest quarter-point cut is widely expected to be announced after the central bank meets next week. Over time, a series of rate cuts should reduce the cost of borrowing across the economy, including on mortgages, auto loans and credit cards.

Other central banks in advanced economies such as Canada, Switzerland and the United Kingdom have already cut rates. On Thursday, the European Central Bank lowered its reference rates for the second time this year, as both inflation and economic growth cool.