U.S. producer prices increased 0.4% in August, in line with expectations, as energy costs rebounded, the Labor Department's Bureau of Labor Statistics said Thursday. The Producer Price Index for final demand followed an upwardly revised 0.1% gain in July, and in the 12 months through August the PPI advanced 5.4%, up from a 4.8% rise in July. Energy prices increased 4.2% over the month as renewed hostilities between the United States and Iran boosted oil prices, while wholesale food prices edged up 0.1% and services prices nudged up 0.1%. Beginning in August, the government is changing how it calculates prices for portfolio management and investment advice services, legal services, and computer software and accessories, and Morgan Stanley economists estimated the methodology revamp could revise the 12-month and six-month annualized rates of core PCE inflation through July down to roughly 3.1% and 3.2%, respectively, from 3.3% and 3.5% currently. Ahead of the PPI report, financial markets saw a roughly 62% chance of a 25-basis-point rate hike at the Fed's September 15-16 meeting, with the benchmark overnight interest rate currently in the 3.50%-3.75% range.
Morgan StanleyMorgan Stanley economists' estimate that the PPI methodology revamp could lower core PCE inflation is a passing analytical mention, not a company-specific development.
