Inflation, as measured by producer wholesale prices, slowed to 8.7% for the year ending in August, according to a report Wednesday from the Bureau of Labor Statistics.
That year-over-year inflation rate was down from 9.8% the month before, a bit lower than forecasters expected. On a month-to-month basis, the producer price index declined by 0.1%, on par with forecast expectations.
Looking at the past several months, it appears as though inflation as measured by the producer price index peaked and is on its way down. Wholesale inflation reached its zenith in April, clocking in at 11.5%. It stayed above 10% throughout the summer but has now been in retreat for the past two months.
“Net, net, factories aren’t manufacturing as much inflation for a second month in a row, so while inflation isn’t completely contained, there is hope that the diminished pressures on PPI goods prices will lead to less inflation in the future for the goods sitting on store shelves that consumers buy,” said Chris Rupkey, chief economist at FWDBONDS.
STOCKS HAVE WORST DAY IN YEARS AS INVESTORS PANIC AFTER HOT INFLATION REPORT
Wednesday’s report comes just a day after the much-anticipated consumer price index report for August came in hotter than expected and upset financial markets.
The consumer price index report showed inflation slowed to 8.3% for the 12 months ending in August. On a monthly basis, prices increased by 0.1%, in defiance of a consensus among forecasters that they would slightly decrease.
The consumer price index is more closely watched than the producer price index, so the worse-than-forecast report sent shockwaves through the economy. Investors began selling off assets as they bet on a recession that would send stocks even lower. U.S. stock markets had the worst day since 2020.
The Dow Jones Industrial Average shed more than 1,200 points on Tuesday, the seventh biggest decline in points in U.S. history. The tech-heavy Nasdaq composite plunged by more than 5%, and the S&P 500 had about 4.3% of its value erased following the report.
A big reason for the market freak-out was that it likely means the Federal Reserve will have to prolong its interest rate hiking cycle and act even more aggressively to combat rising prices. Raising rates causes the economy to cool and could lead to a recession, a prospect that investors see as ever more likely.
The Fed has raised rates twice by 75 basis points so far this year. The first hike marked the most aggressive increase since 1994, and it is expected that there will be another jumbo rate hike following the Federal Open Market Committee’s meeting next week.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
Investors now see a 70% chance of a 75-basis-point hike and a 30% chance that the Fed will go even further and raise rates by 100 basis points at once, according to CME Group’s FedWatch tool, which calculates the probability using Fed fund futures contract prices.
“The longer inflation stays high, the more the Fed will raise rates, and the more likely the Fed is to push the economy into a recession,” said Bill Adams, chief economist for Comerica Bank.
