US producer inflation tops expectations as diesel costs jump

In August, wholesale inflation in the US surpassed predictions, primarily due to increased energy costs, particularly diesel fuel, as the conflict with Iran persisted, according to government data released on Thursday. The Producer Price Index (PPI) rose by 5.4% year-on-year, a notable increase from the 4.8% growth in July and above the anticipated 5.3% by economists.

On a month-to-month basis, the PPI climbed by 0.4%, matching the expectations of analysts. Energy costs surged by 4.2% over the month, with diesel prices surging by 24.1%, the Labor Department's report indicated. The average cost of diesel in the US reached a record US$5.98 per gallon, a sharp rise from the year-ago average of US$3.71 per gallon, as reported by AAA, the motorists association.

Despite President Trump's promise that oil prices would decrease following the US-Israeli strikes against Iran, the conflict has stalled for over six months. The pressure to end the fighting has grown as the November midterm elections approach, with Trump's supporters, including farmers, becoming increasingly dissatisfied. The rising costs of diesel used for farm equipment have exacerbated expenses during the fall harvest season.

Additionally, on Thursday, the yield on the 30-year Treasury bond increased to 5.35%, its highest level since 2007. The focus has now shifted to the Consumer Price Index, a crucial indicator of consumer inflation, set to be released on Friday, as it may impact US interest rates. The Federal Reserve committee is expected to meet the following week, and a potential 25 basis point rate hike is seen as likely, with a nearly 70% probability according to the CMEGroup's FedWatch tool.

Headline producer prices were mainly driven by the sharp increase in diesel fuel costs over August, but the ongoing Iran war and supply chain disruptions continue to exert pressure on goods costs beyond energy and food, according to Nationwide senior economist Ben Ayers.