In the United States, lower-than-anticipated inflation among producers in July provided a basis for the Federal Reserve to maintain interest rates in September. According to data published by the United States Bureau of Labor Statistics, the final demand producer price index (PPI) was at a level below the market expected growth of 0.2 per cent in July and slowed to 4.7 per cent from 5.5 per cent in June.

This data was released on August 13th in the early hours of American-East time. PPI mainly reflects changes in production-end prices and is an important indicator of whether inflation continues to transmit to the consumer-end. The revised June data represented a 0.1 per cent decrease in the ring ratio, indicating that the price pressure at the end of production had fallen somewhat higher than in the previous period.

Core inflation is still not significantly cooled.

Although overall data are weak, the removal of core calibres from food, energy and trade services has not been accompanied by a significant return. This indicator increased by 0.4 per cent in July and 4.7 per cent in the same year, indicating that some underlying price pressures remained.

This means that a single-month change in the headline data is not enough to fully dispel the market's concerns about the adhesiveness of inflation. In particular, the Federal Reserve still needs to continue to observe follow-up data, given that service prices remain high.

The return of goods offset the rise in services

On a sub-level basis, final demand commodity prices fell by 0.7 per cent in July, service prices by 0.2 per cent and construction-related prices by 2.2 per cent. Among them, energy prices, which were the main drag on commodities, declined by 3.1 per cent in July; food prices fell by 0.9 per cent.

Petrol prices fell by 5.7 per cent that month, accounting for the bulk of the fall in commodity prices. In contrast, there is still some resilience at the service level. The price of portfolio management services rose by 6.5 per cent in July and rose 0.6 per cent after trade, transport and warehousing were eliminated.

The data calibration cited by Reuters also indicates that the PPI statistics were mostly completed at the beginning of the month, so that the effects of the rapid upswing in oil prices in the latter part of July may not yet be fully reflected in the present report.

The return on the United States debt

After the data were released, the bond market interpreted it as more favourable to the Fed to maintain its current policy. The United States Treasury debt rate of return went down and the short-end rate of return was even more pronounced, reflecting a weakening of the market's investment in continued upwards of policy interest rates.

The article mentions that, as soon as the data were available, the return on United States debt for the biennium was about 4.15 per cent, which was below its previous average short-term value level, and continued the downward trend since late July.

Follow-up data for the September meeting

Prior to this, the consumer price index (CPI) ring increased by 0.1 per cent in the United States in July and 3.4 per cent in the same year; the core CPI ring increased by 0.2 per cent and 2.5 per cent in the same year. Together with CPI, the PPI slowdown further reinforced the market's judgement that the interest rate hike would be suspended in September.

At its July meeting, the Federal Reserve maintained the benchmark interest rate at between 3.50 and 3.75 per cent, but at that time there were three decision makers supporting the 25 basis points. The next sessional meeting will be held from 15 to 16 September. The Chairman of the Richmond Federal Reserve, Balkin, stated that there was still uncertainty as to whether there was a further increase in interest rates and that the subsequent release of inflation, employment and energy price data would continue to influence decision-making in September.