Rate-Hike Odds Spike As Fuel Costs Push US Producer Prices Higher

In a relatively unusual turn around, US producer prices hit today ahead of tomorrow's CPI. Interestingly Consumer prices get all the headlines, it is PPI that offers the most read-throughs for Core PCE - The (old) Fed's favorite inflation gauge).

Headline producer pries were expected to rebound significantly from July's flatline as oil prices rebounded on re-escalations in the MidEast, and they printed right in line, up 04.% MoM in August (with July's revised up to +0.1% MoM. That lifted the annual PPI gain to +5.4% YoY (hotter than expected)...

Energy has flipped from deflation to re-inflation...

PPI final demand good rose 1.1% MoM, the most since May, while PPI final demand services rose 0.1%, the lowest since May.

Here are the details behind the breakdown:

Final demand goods: The index for final demand goods advanced 1.1% in August following two consecutive decreases.

• Over three-fourths of the broad-based rise can be attributed to prices for final demand energy, which moved up 4.2%.The indexes for final demand goods less foods and energy and for final demand foods increased 0.4% and 0.1%, respectively.

Product detail: Over a third of the August increase in the index for final demand goods can be traced to prices for diesel fuel, which jumped 24.1%. The indexes for gasoline, jet fuel, home heating oil, candy and nuts, and tobacco products also advanced. In contrast, prices for residential electric power fell 0.5 percent. The indexes for fresh sausage and for aluminum mill shapes also decreased.

Final demand services: The index for final demand services edged up 0.1 percent in August, the third consecutive increase.

• The August advance can be attributed to a 2.3-percent rise in prices for final demand transportation and warehousing services. Conversely, the index for final demand trade services moved down 0.2 percent, while prices for final demand services less trade, transportation, and warehousing were unchanged.

Product detail: Leading the August increase in the index for final demand services, prices for truck transportation of freight advanced 2.0 percent. The indexes for airline passenger services, legal services, hospital inpatient care, and automobiles retailing (partial) also rose. In contrast, margins for fuels and lubricants retailing decreased 11.3 percent. The indexes for health, beauty, and optical goods retailing; machinery and equipment wholesaling; and portfolio management also moved lower.

Core PPI (Ex Food and Energy) rose a cooler than expected 0.2% MoM (+0.3% MoM exp), and pulled Core producer prices up 4.6% YoY (as expected)...

Energy was the biggest driver with Transportation and Warehousing costs jumped while Trade costs deflated...

Portfolio management costs declined as stocks stagnated...

Higher crude, higher PPI Energy...

Fuel costs were the biggest driver within Energy/Commodities with over a third of the August increase in the index for final demand goods can be traced to prices for diesel fuel, which jumped 24.1%.

And that has lifted rate-hike odds for next week, now at 75%...

Will Warsh deliver another major surprise (not hike)? Just wait for tomorrow's CPI to print cool...