Economists expect the Bureau of Labor Statistics report on producer prices to show that core inflation was relatively contained in August, but the all-items index is set to keep rising at record-annual levels, even with a predicted decline over the past month.
The consensus expects core producer prices, which exclude volatile food and energy costs, to rise a tame 0.2% in August, after a whopping 0.7% advance in the July report. Even with that drop, however, the current annual pace of 3.5% is set to move up to 3.7% in Friday's report.
Economists from Scotia Capital said core prices should see "some moderation on a monthly basis as prices in general begin to fall from elevated levels although there will likely be some pass-through into core PPI as some producers were forced to raise their prices as their margins continued to be squeezed."
The consensus forecast is looking for a 0.5% decrease in the all-items index compared to the previous month, yet the annual headline rate is set to move up to 10.2%, advancing from the 9.8% pace recorded in July - the fastest pace since 1981.
Global Insight economists Brian Bethune and Nigel Gault said the collapse in energy prices should allow producer prices to post the first monthly fall since last December, following three months of advances above 1.0%.
"Sharp declines in gasoline and heating oil prices will shove the energy index roughly 2.5% lower. In addition, food prices will not have as much upward force as in recent months," they added.
Economists from JPMorgan noted that July's rise in core prices was the fastest pace in nearly two years, while the 3.5% year-over-year rate was the biggest increase since 1991. They said core consumer goods are growing at a different pace, but the two reports do tend to accelerate and decelerate together.
The report will be released at the same time as U.S. retail sales data for August, which should garner more attention than producer prices. Moreover, economists say that markets are more concerned with news about Lehman Brothers than economic data.
After the last report, Guy LeBas from Janney Montgomery Scott said the major surprise was the gain in core prices. "All-in, the jump in producer prices represents a major risk for the economy at this fragile point. While we're fans of the 'one data point does not a trend make' philosophy of economic analysis, evidence of elevated producer inflation is becoming harder to dismiss."
By Patrick McGee and edited by Sarah Sussman
©CEP News Ltd. 2008