Expectations ‘smashed’: Wholesale inflation unexpectedly declined in August

Wholesale inflation unexpectedly declined in August, the Bureau of Labor Statistics (BLS) reported Wednesday morning.

The producer price index (PPI) inched down by 0.1% in August, beating economists’ expectations, according to the BLS. Meanwhile, the index for final demand declined to a 2.6% increase for the 12 months ending in August, compared to a 3.3% increase in July, the BLS reported.

“One thing I found interesting looking at the numbers was so much of it was being driven by the energy prices going down,” Preston Brashers, a research fellow at the Heritage Foundation’s Grover M. Hermann Center for the Federal Budget, told the Daily Caller News Foundation. “That was the big driver in the overall PPI falling. It’s interesting because we have been seeing so much deregulation and kinda pushing to open up federal lands and different things of that nature, and I think it’s been having some success.”

“At the same time, there was some concern from people about paring back the tax subsidies for the Green New Deal in the ‘Big, Beautiful Bill,’ that that would actually raise energy prices, but there doesn’t seem to be any indication of that,” Brashers added.

August’s PPI report comes after Federal Reserve Chair Jerome Powell signaled on Aug. 22 that the central bank may lower interest rates in its upcoming September meeting. President Donald Trump has repeatedly criticized Powell as being “too late” for declining to slash interest rates in 2025.

“The unexpected decline in PPI really solidifies that there will almost certainly be a rate cut at the next Fed meeting,” Brashers continued. “I think, you know, some people were looking at whether there would be a 50 basis point cut, I think that’s maybe a bit more of stretch even now, just because if you look at some of the particulars, a lot of the decline is coming from energy, so they [the Fed] may look at that and that may make them less inclined to think that they need to have that dramatic of a reaction. But, it is true, it seems like they’re a little bit late to this.”

“Because of its dual mandate, the Federal Reserve must balance decisions with an eye on both unemployment and inflation, and right now there’s tension between a rapidly weakening U.S. labor market and inflation that remains above target,” Peter C. Earle, director of Economics and Economic Freedom at the American Institute for Economic Research, told the DCNF. “The unexpected drop in producer prices last month makes it more feasible for the Fed to lower rates, since it suggests that cost pressures aren’t being aggressively passed on to consumers.”

Earle said that the “key test is Thursday’s CPI [Consumer Price Index] release.”

“If that report shows a similarly subdued trend, it could lower the risk of spiking prices after a rate cut and make even a 50-basis-point move at next week’s FOMC [Federal Open Market Committee] meeting look feasible,” he added.

Still, Earle told the DCNF that the August PPI numbers “show mixed signals in the real economy.”

“The producer price index numbers show mixed signals in the real economy,” Earle explained. “The headline decline was driven by services, specifically the steepest drop in trade services margins since July 2024, which implies wholesalers and retailers are absorbing more tariff costs rather than passing them through. That points to some margin compression. Goods inflation, however, is still elevated — finished core goods saw their largest monthly gain since May of this year — suggesting that supply-side cost pressures haven’t gone away. Taken together, this hints at easing pressure in services but stubborn inflation in goods, reflecting an economy where pricing power is uneven and still under stress from tariffs.”

“Beyond the PPI print itself, Treasury yields fell modestly, with the 10-year dipping as low as 4.05%,” Earle added. “Market reactions are forward-looking, and regression analysis between PPI and CPI points to a possible negative CPI print — but those correlations are shaky, and volatility in services pricing means one soft month doesn’t guarantee a trend. Survey data continues to show persistent cost concerns among businesses and households, suggesting that even if disinflation gives the Fed room to ease rates, inflationary risks haven’t disappeared.”

“Non-existent wholesale inflation gives even more justification for the Federal Reserve to cut interest rates by at least 50 basis points at its meeting next week,” Alfredo Ortiz, CEO of Job Creators Network, said in a statement provided to the DCNF. “Thanks to President Trump and Republican policies, small businesses no longer have to worry about runaway inflation that destroys profit margins and alienates customers. Now, the biggest threat they face is artificially high interest rates from a politicized Fed.”

“When small businesses can’t access credit, they can’t reinvest in their businesses and create jobs in their communities,” Ortiz added. “Low and predictable inflation ensures the Fed can finally cut rates to free up capital and empower small businesses to kick start the Main Street resurgence.”

Following the release of the August PPI report, Trump wrote in a Wednesday Truth Social post that “Too Late” Powell must lower interest rates “right now.” The president wrote further that the Fed chairman “doesn’t have a clue.”

“Just out: No Inflation!!!” Trump wrote in the social media post. “‘Too Late’ must lower the RATE, BIG, right now. Powell is a total disaster, who doesn’t have a clue!!! President DJT.”

Moreover, White House Press Secretary Karoline Leavitt said in a statement Wednesday that the latest PPI report indicates that Trump has “defeated” former President Joe Biden’s “inflation crisis.” Biden notably oversaw rampant inflation throughout much of his time in office.

“The latest PPI report shows there is no inflation — wholesale prices fell and smashed economists’ expectations,” Leavitt said. “President Trump has defeated Joe Biden’s inflation crisis while successfully implementing powerful tariffs, which haven’t hiked prices like the so-called ‘experts’ claimed. This is yet another reason for Jerome ‘Too Late’ Powell to cut the rates immediately to make everyday life more affordable for Americans.”

Last month, Trump announced he was firing BLS Commissioner Erika McEntarfer after the July jobs report fell short of economists’ expectations, claiming she had “faked the Jobs Numbers” before Election Day 2024 to try and improve former Vice President Kamala Harris’ chances of winning. Trump announced on Aug. 11 that he had selected conservative economist Dr. E.J. Antoni to serve as the BLS’ new commissioner.

Additionally, the BLS reported on Tuesday that U.S. job growth in the year ending in March was much weaker than previously thought, with the economy likely adding a whopping 911,000 less jobs during that time period.

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