PPI Provides Two Reasons Not To Raise Interest Rates

In August, the Producer Price Index (PPI) for finished goods rose just one-tenth of a percent for the second consecutive month. Also in August the PPI minus price changes for food and fuel decreased for the second consecutive month. Those facts are two reasons for the Federal Open Market Committee not to raise short-term interest rates when it meets on September 20. The influential federal funds target rate is now at 5.25%.

Higher prices for food and energy in August just slightly offset falling prices for other consumer goods and for capital equipment to produce the tenth of a percent increase in the overall PPI, the U.S. Labor Department explained as it released the latest data on September 19. However, the core PPI, which does not count price changes for food and fuel, fell four-tenths of a percent in August, its largest one-month decline this year and a contrast to monthly increases from January through June.

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