PPI rises, but remains below year-ago levels; inflation expected to stay in check

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Despite another larger than usual gain in the producer price index, inflation remains tame compared to last year, and economists, and the Federal Reserve, are not worried about an outbreak of higher prices.

Final demand PPI rose 0.3% in August, while the core rate, which excludes food and energy, gained 0.4%, data released by the Labor Department Thursday showed.

The August rise follows a 0.6% climb in July for the headline number, while the core rose 0.5% in July.

Economists polled by IFR Markets projected each would increase 0.2% in the month.

The final demand index fell 0.2% for the year ending in August; economists predicted it would drop 0.3%.

Core PPI year-over-year is up 0.6%; economists expected a 0.3% gain.

“The increase in August, lifts the change year-over-year PPI to -0.2% from -0.4%, well above its low of -1.5% year-over-year in April, but below its pre-pandemic average of 1.6%,” said Roiana Reid, U.S. economist at Berenberg Capital Markets. “The core PPI saw its third consecutive month of increases, lifting its year-over-year change to 0.3% from 0.1% but still remaining well below February’s year-over-year increase of 1.4%.”

She added, "pipeline inflationary pressures remained benign” in the month.

“Inflation is likely to remain low over the next year as the effects of the pandemic dominate,” Reid said. “Beyond 2021, the path of inflation depends on fiscal policy, the Fed’s monetary policy, in particular its desire for above-2% inflation, and inflation expectations.”

Initial claims
Jobless claims held at a seasonally adjusted 884,000 in the week ended Sept. 5 from the previous week’s upwardly revised level, originally reported as 881,000 the Labor Department said Thursday.

Economists polled by IFR Markets projected 838,000 claims in the week.

“Just a week away from the half-year mark of sustained and elevated new unemployment claims, the latest number was unchanged,” said Mark Hamrick, senior economic analyst at Bankrate. The number of claims is still "more than four times the average early this year of 218,000 in the 11 weeks before the pandemic mushroomed."

Continuing claims rose to 13.385 million on the week ended Aug. 29 from an upwardly revised level of 13.292 million a week earlier, first reported as 13.254 million.

“With the summer months behind, the seasonal aspects of COVID-19 including the need to spend more time inside pose risks to the economy,” Hamrick said. And businesses in college towns are hurt by school closings, especially now that they're used “to welcome back students as customers. Back-to-school, Halloween and holiday shopping will all have a constrained mode this year. As brick-and-mortar retailers, bars and restaurants continue to operate below par, the risk of permanent job loss remains ever present."

Ed Moya, senior market analyst at OANDA, believes the claims data confirm the labor market rebound has “hit a brick wall.”

“It will probably take a few more lackluster readings to force Washington D.C. to do something,” he said. “Both initial jobless claims and continuing claims came in higher than forecasts. Claims surged in California, Texas and Louisiana. Claims still remain elevated and this pretty much confirms the Fed is going nowhere.”

The states with the largest rise in claims in the week ending Aug. 29 were: California (22,647), Texas (4,521), Louisiana (3,662), Tennessee (1,288), and Missouri (1,226), while the states with the biggest drops were: Florida (6,057), Georgia (5,485), Pennsylvania (2,627), Wisconsin (1,422), and Michigan (1,159).

"A number of key states saw increases in their reported claims, including Texas and California,” Hamrick said. "The recent August employment report highlighted that jobs are being restored at a slowing pace with a deficit of more than 12 million positions still to recover compared to February."

Wholesale trade
Wholesale inventories fell 0.3% in July, after declining a revised 1.3% in June, first reported as a 0.1% drop, the Commerce Department said Thursday.

Economists expected inventories to fall 0.1%.

Total inventories were 5.6% below the July 2019 level.

Sales of merchant wholesalers increased 4.6% in the month, after a 9.0% jump in June, first reported as an 8.8% gain, but are down 4.0% year-over-year.

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