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Economic Report: Wholesale costs falls for second month in a row due to cheaper gas but U.S. inflation still intense

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The numbers: The cost of wholesale goods and services fell 0.1% in August largely due to lower gas prices, but there were also some signs of easing inflation despite persistent price pressures embedded in the economy.

The back-to-back drops in the product price index was the first since early 2020, just as the pandemic was emerging globally. Economists polled by The Wall Street Journal had forecast a 0.1% decline.

The increase in wholesale prices over the past year slowed to 8.7% from 9.8% in the prior month.

Still, economists don’t expect the recent decline in wholesale costs to be sustained, especially if gas prices level off as it appears.

A separate measure of wholesale prices, meanwhile, that strips out volatile food and energy costs rose by 0.2% in August, the government said Wednesday.

The increase in these so-called core prices over the past year also slowed to 5.6% from 5.8%.

Just a year and a half ago, however, prices were rising at a less than 2% pace.

Rising wholesale prices tend to be a harbinger of higher consumer price inflation. A day earlier, the government’s August report on consumer prices showed inflation still running rampant through the economy.

Big picture: High inflation isn’t going to subside quickly — it’s spread too far and wide through the economy and won’t be easy to eradicate.

The Federal Reserve is trying to tame inflation by sharply raising interest rates and another big rate hike is coming next week, economists say.

The central bank is between a rock and a hard place. If the Fed has to raise rates quite high to vanquish inflation, it could also trigger the second recession since the onset of the pandemic in 2020.

Market reaction: The Dow Jones Industrial Average
DJIA,
-3.94%

and S&P 500
SPX,
-4.32%

were set to open slightly higher in Wednesday trades. Both indexes suffered 4% declines on Tuesday after another dismal report on consumer price inflation.

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