Producer input costs ran 6.1 points ahead of final demand prices in August

Processed goods for intermediate demand rose 11.5 percent over the 12 months to August, against 5.4 percent for final demand ^[14][3]. That is a gap of 6.1 points between what firms pay each other for goods and what they get at the end of the chain ^[1]. Input inflation is running about 2.1 times output inflation ^[2]. The single month says the same thing. The BLS index for final demand less foods, energy and trade services rose 0.3 percent ^[5]. Wolf Richter's core measure, which excludes food and energy but keeps trade, rose 0.16 percent ^[17], roughly half as fast ^[6]. Trade services in the PPI are distributor margins, and final demand trade services fell 0.2 percent in August ^[12].

Fuel is the clearest case. Diesel accounted for nearly two-thirds of the 1.8 percent rise in processed goods for intermediate demand ^[15]. It reached freight rates inside the same month. Prices for truck transportation of freight rose 2.0 percent ^[10] and final demand transportation and warehousing services rose 2.3 percent ^[11], a series Richter puts at 10.3 percent over 12 months ^[19].

The recent monthly path argues against reading straight acceleration into this. Final demand compounds to about 0.4 percent across June, July and August, roughly 1.6 percent annualized ^[5], against an unadjusted 12-month rate of 5.4 percent. The monthly figures are seasonally adjusted and the annual one is not ^[3]. Richter reports that July was revised higher ^[26], and has core goods at 5.0 percent year over year, in the same range for four months and the highest since February 2023 ^[18]. Final demand food prices rose 0.1 percent over the year ^[21].

There are two readings. In the first, a diesel spike passed through an otherwise flat quarter and unwinds when crude does. In the second, the pressure sits underneath energy. Processed materials less foods and energy rose 0.5 percent in August ^[29], and unprocessed nonfood materials less energy rose 2.1 percent ^[28]. The ex-trade core printed 0.4 percent in July and 0.3 percent in August, which compounds to about 4.3 percent annualized ^[4]. I lean to the second, because July's 0.4 percent came before the fuel move, and 0.4 percent a month is 4.9 percent a year ^[3]. A September ex-trade core at 0.1 or 0.2 percent, with the goods leg reversing, would settle it the other way.

Richter wants the FOMC to act now. He wrote that the 12 voting members, chaired by Warsh, "need to quit dilly-dallying around and vote for rate hikes, because this kind of inflation deeper in the economy is nothing to be trifled with" ^[22][23]. He also notes that consumer-facing measures are somewhat less hot than business inflation, with CPI due the day after the September 10 release ^[24][16]. On the quarterly GDP-based measure, prices for the whole economy rose 6.4 percent annualized in Q2 from Q1 and 4.4 percent year over year ^[25].