A measure of U.S. producer prices fell for a second month in August as fuel costs continued to retreat, though an underlying measure of wholesale costs firmed in a sign of persistent inflation in the production pipeline. 

The producer price index for final demand decreased 0.1 per cent from a month earlier and increased 8.7 per cent from a year ago, Labor Department data showed Wednesday. Excluding the volatile food and energy components, the so-called core PPI climbed a larger-than-forecast 0.4 per cent in August and was up 7.3 per cent from a year earlier.

The figures come on the heels of hotter-than-expected consumer price data and feed into mounting concerns about the breadth and pace of US inflation. While gasoline prices eased in the month, producers faced higher costs for services and some goods such as construction equipment and beverages. 

With inflation poised to be elevated for some time, the Federal Reserve is expected to raise interest rates by another 75 basis points at their meeting next week, marking the third-straight historically large increase.

Consumer price index data out Tuesday showed inflation picked up in August as widespread price pressures -- from rent to food to utilities -- offset a sizable decline in gasoline prices. Rising costs at the producer level tend to feed into consumer prices, but the CPI report also showed how household demand is playing into price increases.

Wednesday’s report showed goods prices fell 1.2 per cent as gasoline prices continued to fall. Food prices were unchanged from the prior month. Excluding food and energy, the index of goods costs rose 0.2 per cent for a second month.

Services prices increased 0.4 per cent, the most in three months. Forty percent of the gain was due to higher margins for fuel retailers.

What Bloomberg Economics Says...

“Goods inflation should continue to moderate amid cooling demand, better supply-chain performance and the strong dollar, but producers are contending with strong wage pressures, especially in labor-intensive services industries... The report adds to concerns about a potential wage-price spiral, particularly within services, likely keeping the Fed hiking rates through the first half of 2023.”

--Eliza Winger, economist

The Labor Department report follows separate data from the Institute for Supply Management and S&P Global, both of which showed an easing in price pressures. ISM’s gauge of prices paid by manufacturers for raw materials fell to a two-year low in August.

That said, a potential railway strike threatens to mangle supply chains once again. The walkout, which could begin later this week, would disrupt the transportation of goods ranging from food and lumber to coal.

Producer prices excluding food, energy, and trade services -- which strips out the most volatile components of the index -- climbed 0.2 per cent from the prior month and 5.6 per cent from August of last year.

Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, dropped for a second month. Even excluding food and energy, the measure dropped 0.8 per cent.