Thursday's economic data has offered the Fed food for thought from both sides of its dual mandate: price control and full employment. The National Association of Realtors also tossed in a bitter morsel from the housing market, for good measure.
Beginning with the former, the Labor Department's producer price index (PPI), which tracks the prices U.S. companies get for their goods and services at the figurative factory door, came in hot, but largely as expected.
The report showed PPI rose by 0.4% last month, an abrupt acceleration from July's 0.1% growth and hitting analyst estimates on the nose.
Year-on-year, PPI surged by 5.4%, hotter than the prior month's upwardly revised 4.8% annual growth rate and a tad warmer than the 5.3% consensus.
Stripping away volatile food and energy prices, PPI jumped on monthly and annual bases by 0.2% and 4.7%, respectively. The monthly print was slightly cooler than the 0.3% shared by economist projections and July's upwardly revised number.
Under the hood, the energy component provided most of the heat, rising 4.2% from July and a whopping 24.4% from August 2025, all of which happened in the wake of the U.S.-Israeli war. Before the onset of that war, year-on-year energy price growth was essentially zero.
Core PPI, which excludes food, energy and trade services, edged lower to 0.3% on the month, and repeated July's 4.7% year-on-year figure.
As the second take on August price growth, after Friday's wage data included in the jobs report—the Labor Department's CPI data is on deck for Friday—PPI remains the hottest inflation indicator of the bunch (by far), with the core number hovering 2.7 percentage points north of the Fed's average annual 2% target.
Prior to the report, financial markets were pricing in a 64.2% likelihood of a rate hike at the conclusion of next week's Fed policy meeting. Those odds now stand at 69.8%, according to CME's FedWatch tool.
"As the conflict with Iran drags on longer than many expected, inflation pressures are becoming increasingly entrenched, leaving investors in search of a catalyst strong enough to change the inflation narrative," writes Jeffrey Roach, chief economist at LPL Financial. "At this rate, a hike in rates next week appears likely."
Of course, August PPI data is backward-looking. Crude prices CLc1 have already surged over 16% this month in the first 10 days of September.
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