U.S. factory-gate prices fell in August, signaling softer-than-expected inflationary pressures and reinforcing expectations that the Federal Reserve could move to cut interest rates at its upcoming policy meeting.

According to the Bureau of Labor Statistics, the producer price index (PPI) slipped by 0.1% on a monthly basis. Economists had forecast a 0.3% increase, following July’s upward momentum which was revised lower to 0.7%.

The decline surprised markets, given recent concerns that import tariffs could feed into higher price levels. Instead, the data suggests that inflationary pressures may be easing, providing the Fed with additional justification to act more decisively when it meets on September 16–17.

Implications for Fed Policy

The PPI is closely watched by investors and policymakers alike, not only as a measure of inflation at the wholesale level but also because components of the report feed into the personal consumption expenditures (PCE) price index — the Fed’s preferred inflation gauge.

While the August PCE reading will not be released until September 26, after the Fed meeting, the weaker PPI data strengthens expectations that the central bank will deliver at least a 25-basis-point rate cut next week.

Focus Shifts to CPI Data

The PPI release comes ahead of Thursday’s consumer price index (CPI) report, which will provide further insight into inflation dynamics at the consumer level. CPI is expected to be a key determinant in shaping investor expectations not only for September’s decision but also for the Fed’s policy path into the remainder of 2025.