US August PPI Rises 5.4% YoY, Slightly Exceeding Expectations; Rate Hike Bets Heat Up, Gold Falls Over 1%, Brent Tops $105

TradingKey - On September 10, Eastern Time, data released by the U.S. Bureau of Labor Statistics showed that the producer price index (PPI) for final demand rose 0.4% month-over-month in August, matching market expectations, and increased 5.4% year-over-year, higher than the expected 5.3%. The month-over-month PPI increase for July was revised from 0.0% to 0.1%, while the year-over-year increase was revised from 4.7% to 4.8%.

In August, final demand goods prices rose 1.1% month-over-month, with energy prices surging 4.2% and diesel fuel prices jumping 24.1%. Final demand services prices edged up 0.1% month-over-month.

The final demand index excluding foods, energy, and trade services rose 0.3% month-over-month, slowing from 0.4% in July, and increased 4.7% year-over-year, unchanged from July.

The rebound in headline PPI year-over-year growth was mainly driven by energy prices. Meanwhile, month-over-month growth in the core measure moderated compared to July, but its year-over-year growth remained at an elevated level of 4.7%.

[Source: U.S. Bureau of Labor Statistics]

Following the release of the PPI data, U.S. Treasury yields rose. The 10-year Treasury yield climbed 5.63 basis points to 4.893%, while the 2-year U.S. Treasury yield gained 5.96 basis points to 4.487%. The 30-year U.S. Treasury yield rose to 5.3381%.

In commodities, Brent crude futures broke above $105 per barrel, surging over 4% on the day. Gold futures tumbled over 1% at one point and were trading at around $4,363 per ounce as of press time.

[Source: TradingView]

Sustained high oil prices have heightened uncertainty around the inflation outlook. Following the PPI release, the market will focus on the August Consumer Price Index (CPI) to be published the next day to gauge whether rising energy prices have spilled over into the prices of other goods and services.

Intraday data from the CME FedWatch Tool showed that after the PPI data was released, the market-implied probability of a 25-basis-point rate hike by the Federal Reserve in September rose to 74% from 62.1% the previous day, while the probability of at least one rate hike by the October policy meeting climbed to 82%. Going forward, the August CPI, crude oil price trends, and the Fed's September policy decision will remain the central focus for the market.