Core producer prices ran at a 2.4% annualized pace in August

Run August's core monthly print forward for a year and see where it lands. Core producer prices rose 0.2% on the month ^[3]. Compound that twelve times and the pace is about 2.4% a year ^[1]. That is 2.2 points under the 4.6% the same release put on the twelve months to August ^[6][10]. The headline does a milder version of the same thing: 0.4% on the month ^[1] annualizes to roughly 4.9% ^[2], below the 5.4% year-over-year figure ^[5].

The two monthly prints moved in opposite directions. Headline producer prices accelerated 0.3 point from July's revised 0.1% ^[1][2], while the core pace slowed 0.1 point from July's revised 0.3% ^[3][4], a divergence of 0.4 point in one release ^[12]. On the year, headline went from 4.8% to 5.4%, a 0.6 point jump ^[5][3], and core from 4.2% to 4.6% ^[6][4]. The food and energy wedge between them widened from 0.6 point to 0.8 ^[5].

Next week's Fed meeting is priced at roughly a 64% chance of a hike, and at least one hike by the December meeting sits near 90% ^[11][12]. Subtract the first from the second and about 26 points of hike probability are sitting in the meetings after next week's ^[6]. Roughly 10 points are on the Fed not moving at all this year ^[7]. Yahoo Finance attributes the shift toward a 25 basis point hike by year end to Fed Chairman Kevin Warsh's Jackson Hole speech last month, which it described as more hawkish than expected ^[10]. The report does not say whether those odds moved after Wednesday's data ^[13].

Friday's consumer price report is expected to hold the headline flat at 3.4% over twelve months and take core down to 2.4% ^[9]. Set that beside Wednesday's readings and the distance is 2.0 points on the headline series and 2.2 points on the core ^[8][9]. One survey covers what producers charge at wholesale and the other what consumers pay ^[14], so the subtraction measures a gap between two surveys, not pass-through.

Direction is already carried at 90% by December ^[12], so in my view what Friday moves is the count and the timing. The 36 points against a September hike ^[11] and the 26 points sitting past it ^[6] are the two places a core CPI surprise can land. The other reading is that August's 0.2% core month is the first of a run. If Friday's core CPI comes in at the expected 2.4% ^[9], the meetings after September reprice first, and next week's 64% rests on the food and energy component. A core CPI above 2.4% alongside a hotter headline works the other way, and September's 64% moves toward the December 90% ^[11][12].