Wholesale prices fell a bit in August, signaling a Federal Reserve rate cut is more likely

Wholesale prices decreased slightly in August, the federal government said Wednesday, a surprise development that should give the Federal Reserve more confidence in cutting interest rates.

The Producer Price Index declined 0.1% in August, beating Wall Street forecasts that expected a slight rise. The index was up 2.6% on an annual basis, according to the Bureau of Labor Statistics.

President Trump took an immediate victory lap and called on Fed Chair Jerome Powell to slash interest rates significantly.

“Just out: No Inflation!!! “Too Late” must lower the RATE, BIG, right now. Powell is a total disaster, who doesn’t have a clue!!!” Mr. Trump posted on Truth Social.

The PPI, which measures prices that producers receive at wholesale before final sale at checkout, is not as closely watched as the Consumer Price Index, which measures prices that everyday consumers see.

However, both measures are factored into an overall index that the Fed uses to set rates. The August CPI number will be reported Thursday.

Wall Street's reaction to the PPI report was relatively muted, a potential sign that investors are more interested in the CPI numbers.

The Dow Jones Industrial Average sagged in negative territory at midday Wednesday, while the S&P 500 and Nasdaq surged due to the soft inflation report and big earnings forecast from the Oracle software company.

The producers’ index said prices in the services sector dropped 0.2% while goods prices, which are more sensitive to tariffs, rose only 0.1%. 

The report could signal some softening in demand, as the labor market weakens, or that U.S. businesses were absorbing some of the costs of tariffs.

Ryan Young, a senior economist at the Competitive Enterprise Institute, said companies’ decision to stockpile goods before tariffs took effect might have been a factor in the cooler-than-expected PPI report.

“Now that the big Liberation Day tariffs are in place, companies are drawing on their stockpiles instead of buying new inputs and paying the tariffs. That slower demand helps to lower prices,” he said.

The question, he said, is what happens in the coming months. 

“Tariffs are pushing prices up. At the same time, companies relying on stockpiles instead of buying new inventory pushes prices down,” Mr. Young said. “It's too early to tell which of those opposing forces will be stronger in the short term, though tariffs will win out in the end as stockpiles get exhausted.”

Mr. Trump, who campaigned on ending “Bidenflation,” says consumer prices have been relatively stable despite doomsday predictions about his sweeping tariffs, which are a tax on imports. He feels vindicated and isn't showing any sign of retreat in wielding tariffs as a negotiating tool or browbeating the Fed into lowering rates.

Mr. Powell and others at the central bank have been reluctant to cut rates because of the volatile nature of Mr. Trump’s trade agenda and the potential for consumer inflation down the road.

However, the Fed is expected to slash rates next week by at least 25 basis points, or 0.25%, because of a marked hiring slowdown.

The U.S. added only 22,000 jobs in August, a slowdown from the 79,000 positions added in July.

Earlier this week, the Bureau of Labor Statistics revised its job-creation total down by 911,000 positions for the 12 months ending in March, indicating a slowdown before Mr. Trump’s inauguration and enactment of sweeping tariffs.

The BLS revises its job numbers based on a quarterly census of employment counts that is subject to updates and errors.

The revision was on the high end of Wall Street estimates and adds pressure on the BLS.

Mr. Trump fired BLS chief Erika McEntarfer over the summer, saying the numbers were rigged against him, and selected E.J. Antoni, an economist at the conservative Heritage Foundation, to replace her.