The Federal Reserve's signal for interest rate cuts has become clearer: U.S. PPI unexpectedly turned negative, declining for the first time in four months

According to the Zhitong Finance APP, U.S. wholesale inflation unexpectedly declined for the first time in four months in August, providing more grounds for the Federal Reserve to consider interest rate cuts. Data released by the U.S. Bureau of Labor Statistics on Wednesday showed that the Producer Price Index (PPI) fell by 0.1% month-on-month, with July's data revised downward. Year-on-year, the index rose by 2.6%.

The report indicates that despite the cost pressures from tariffs imposed by Trump, businesses managed to avoid excessive price increases last month. Although the index saw a significant rise in July, many companies are concerned that substantial price hikes could lead to customer loss due to ongoing economic uncertainty affecting consumer spending decisions.

Following the report's release, U.S. stock index futures and Treasury prices both rose.

Specifically, prices for goods excluding food and energy rose by 0.3%, while service prices fell by 0.2%. In the service sector, the profit margins for wholesalers and retailers dropped by 1.7%, marking the largest decline since 2009 and reversing the significant increase in profit margins seen in July. This year, profit margins have fluctuated greatly from month to month, highlighting the uncertainty of trade policies' impact on prices and demand.

The extent to which businesses pass on tariff costs to consumers will be a key factor in determining the interest rate path for this year. Although Federal Reserve officials generally expect that import tariffs will drive inflation levels higher for the remainder of 2025, they have yet to determine whether this impact will be a one-time adjustment or will have more lasting effects.

The U.S. Bureau of Labor Statistics stated that the decline in service prices in August was largely attributed to a 3.9% drop in profit margins in the machinery and automotive wholesale sectors. Meanwhile, the consumer price index for manufactured goods excluding food and energy recorded the fastest increase since February, partly due to a surge in tobacco product prices— the U.S. Bureau of Labor Statistics noted that rising tobacco prices were a "major factor" driving up goods prices.

Consumer price data set to be released on Thursday will reveal the extent to which tariffs affected American households in August. Analysts expect that the core consumer price index, excluding food and energy, will again show a high monthly increase.

Interest Rate Cut Expectations

The market widely anticipates that policymakers will decide to cut interest rates at next week's meeting in response to the rapid slowdown in the labor market. Federal Reserve Chairman Jerome Powell cautiously "opened the door" to rate cuts at last month's Jackson Hole Economic Symposium, and more recent data has shown that the trend of slowing job growth has continued into August.

Economists place significant importance on the PPI report, as some of its sub-indices are used to calculate the inflation measure favored by the Federal Reserve—the Personal Consumption Expenditures Price Index (PCE). In August, these related indicators showed mixed results: prices for portfolio management services and airline tickets continued to rise steadily, while the increases in various healthcare service prices were more moderate Excluding food, energy, and trade services, the less volatile PPI index rose by 0.3%. The cost of intermediate demand processing products, which reflects the price level upstream in the production chain, increased by 0.4%