5 takeaways from the producer price inflation report with another key reading on tap

The producer price index, a gauge of costs at the wholesale level in the U.S. economy, posted an unexpected 0.1% decline in August. Here's what to know:

1. For the third time this year, PPI showed outright deflation in what is generally considered a measure of pipeline price pressures. Wall Street economists had been looking for a 0.3% increase. Core PPI, which strips out food and energy, also fell 0.1% though core minus trade services actually rose 0.3%
2. The tame reading will only feed market expectations of a Federal Reserve rate cut next week, and President Donald Trump was quickly on the case. “Just out: No Inflation!!! 'Too Late' must lower the RATE, BIG, right now. Powell is a total disaster, who doesn't have a clue!!!” he posted on Truth Social in his latest shot at Fed Chair Jerome Powell.
3. Despite the tame inflation and near-certainty of a rate cut, market reaction was muted. Stocks rose slightly and Treasury yields moved only modestly lower. PPI is generally not considered a high-profile or well-understood metric, and traders are likely waiting for the consumer price index print Thursday.
4. Fed officials look not only at headline numbers but also the underlying drivers. The PPI report provided good news on inflation fundamentals. The service sector, which drives some 80% of GDP, saw outright deflation, falling 0.2%. Even goods prices, which are much more heavily impacted by tariffs, rose just 0.1%.
5. The CPI reading, due Thursday at 8:30 a.m. ET, will get more attention. As with PPI, the consensus outlook is for a 0.3% increase. About four-fifths of the CPI and PPI numbers feed into the Fed's preferred inflation gauge, the personal consumption expenditures price index. CPI is the final big data point before the Fed's rate decision a week from now.