On September 12th, another inflation report was released just before the start of the interest rate meeting.

Data from the U.S. Department of Labor shows that the U.S. Producer Price Index (PPI) increased by 1.7% year-on-year in August, in line with expected figures and the lowest since February of this year; the U.S. PPI increased by 0.2% month-on-month in August, slightly higher than the expected 0.1%, mainly driven by the price of services;

The U.S. core PPI (excluding food, energy, and trade services) increased by 2.4% year-on-year in August, higher than the previous value of 2.3%, meeting expectations; the U.S. core PPI increased by 0.3% month-on-month in August, higher than the expected 0.2%, also driven by services (especially the cost of rent);

At the same time, the U.S. Department of Labor also revised the July PPI from 2.2% down to 2.1%, further indicating that inflationary pressures are easing.

The PPI can provide early signs of the direction of consumer inflation and also offer some reference for the upcoming PCE data.

Like the August CPI data, the pressure on the U.S. PPI in August mainly came from the service sector, especially the cost of room rentals (which increased by 4.8%). In the CPI data released the day before, the housing and transportation costs for U.S. consumers in August recorded an accelerated increase.

In other service sub-items of the August PPI, the price indices for machinery and vehicle wholesale, retail of automotive fuel and lubricants, residential real estate loans (partial), wholesale of professional and commercial equipment, and furniture retail all increased, but the price of air passenger services decreased by 0.8%. In addition, the data shows that the prices of retail food and beverages, as well as membership fees, admission fees, and recreational facility usage fees (partial) also decreased.

Overall, most sub-items of U.S. commodity prices increased in August, but due to the significant decrease in energy costs, the overall growth of commodity prices remained unchanged.

Specifically, the prices of eggs, gasoline, diesel, non-electronic cigarettes, and pharmaceuticals all increased in August; the prices of meat, electricity, hay, grass seeds, oilseeds, and colored scrap materials decreased. The price of aviation fuel plummeted by 10.5%, leading to an overall downward trend in commodity PPI.

As inflation continues to stabilize, the market expects the Federal Reserve to continue to prioritize employment. Strategists at Bespoke Investment Group stated that for most of the past three years, CPI and PPI have been announced in the same week, and these reports can easily become the most important reports of the week. However, the Federal Reserve has now shifted its focus from inflation to employment, and yesterday's CPI report was less publicized than usual, and most traders may not even be aware of today's report.

In terms of data, the number of initial jobless claims in the U.S. for the week ending September 7th slightly increased by 2,000 to 230,000, and the number of continued jobless claims for the week ending August 31st slightly increased by 50,000 to 1.85 million, basically in line with economists' expectations.

The report also shows that after schools in Minnesota reopened for the new school year in September, the number of continued jobless claims may decrease in the coming weeks.

Currently, it seems that with the cooling of the labor market, the threat of inflation heating up is minimal. The data for this month shows that the unemployment rate in August fell from the nearly three-year high reached in July, and the core inflation rate also showed some stickiness in August. The probability of a 50 basis point rate cut digested by the financial market has fallen below 15%.

Barring any surprises, the Federal Reserve will cut interest rates by 25 basis points at the September meeting.