Surging gasoline prices boosts U.S. inflation

U.S. wholesale inflation rebounded in August according to the newest report on Wednesday this week, mainly due to the advance of gasoline prices.

Sept 13 heard the announcement from the Labor Department that the producer price index (PPI) edged up by 0.2 percent last month. Summarily, it advanced by 0.3 percent counted from the slight decline of 0.1 percent in July.

In last 12 months, the PPI has ascended about 2.4 percent. In August, economists had predicted that the PPI could make a gain of 0.3 percent in the final month of third-quarter, marking an acceleration of 2.5 percent from a year ago. Besides, the core PPI rose by 1.9 percent in four quarters through August after a trivial gain in July.

The factor causing the increase of U.S. inflation at the wholesale level is a 9.5 percent surge in the cost of gasoline, the largest since the beginning of this year, accounting for nearly 75% of the 0.5 percent climb in the prices of goods. On the contrary, wholesale food costs confirmed a plunge of 1.3 percent, the biggest decline in more than two years, after remaining static in July.

While prices of U.S. Treasuries were gently up, DXY traded lower against major counterparts in addition to stock index futures after the release. Global traders are focusing on U.S. inflation which could influence the Fed decision for the third interest rate hike likely happening in December 2017.

Meanwhile, the annual advance in the personal consumption expenditures (PCE) remained lower than central bank’s mid-term inflation target of 2.0 percent. The core PCE was up by 1.4 percent last month, the smallest rising level since the beginning of 2016. Besides, the cost of healthcare services escalated by 0.3 percent, while core goods prices increased 0.2 percent in August after sliding 0.1 percent in an earlier month. Economists announced that healthcare inflation was well-controlled thanks to flat accretion from the Medicare program reimbursements to doctors and hospitals of government.

Anyhow, Federal Reserve System (Fed) still has to pay close attention to the effect of gasoline prices on the wholesale inflation. Fuel prices may remain exalted because of Hurricane Harvey and Irma driving negative impacts to U.S. economy, along with recently swelling geopolitical risks between the United States and North Korea.
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