Wholesale price increases in the United States mostly slowed last month, the latest evidence that inflationary pressures are easing, enough for the Federal Reserve to start cutting interest rates next week.
The Labor Department on Thursday reported that the producer price index that tracks inflation before reaching consumers rose by 0.2% from July to August. This was an improvement from the unchanged reading in the previous month. However, when measured from last year, prices rose 1.7% in August, which was the smallest annual increase since February and down from a 2.1% increase in July.
Excluding food and energy prices, which tend to fluctuate from month to month, core wholesale prices increased by 0.3% from July and have increased by 2.3% since August 2023.
Overall, last month's wholesale price figures show that inflation is moving back toward the Federal Reserve's 2% target. After reaching their highest peak in four decades in mid-2022, gas, grocery, and auto prices either declined or increased at a slower rate than before the pandemic. On Wednesday, the government reported that its main measure of inflation, the consumer price index, rose just 2.5% in August from a year earlier, the most modest 12-month increase in three years.
The producer price index can provide an early indication of where consumer inflation is heading. Economists also watch it because some of its components, especially health and financial services, affect the Federal Reserve's preferred measure of inflation, the personal consumption expenditures (PCE) index.
In an effort to fight high inflation, the Federal Reserve raised its benchmark interest rate 11 times in 2022 and 2023, taking it to the highest level in 23 years. With inflation now close to their target level, Fed policymakers are poised to begin lowering their key rate from a 23-year high in hopes of boosting economic growth and hiring.
A small reduction of a quarter point is expected to be announced after the central bank meeting next week. Over time, a series of rate cuts are expected to lower borrowing costs across the economy, including for mortgages, car loans and credit cards.
