U.S. producer inflation cooled sharply in August, reversing July's spike and fueling hopes for Federal Reserve rate cuts as Wall Street sets new record-breaking highs.
The Producer Price Index dropped 0.1% in August, marking the third monthly decline in 2025 and a sharp turnaround from July's downwardly revised 0.7% gain. Analysts had expected a 0.3% increase, making the latest reading a notable miss.
On a yearly basis, producer inflation slowed from 3.3% to 2.6%, coming in well below consensus expectations for no change. The figures suggest inflationary pressures at the production level are easing more rapidly than anticipated.
Excluding volatile food and energy categories, the core PPI also fell 0.1% month-over-month, sharply cooling from a 0.9% increase in July and missing forecasts of a 0.3% rise. Annually, the core PPI dropped from 3.4% to 2.8%, defying expectations for an increase to 3.5%.
Bureau of Labor Statistics indicates that the decline in August's final demand index largely stems from a 0.2% drop in prices for final demand services. Roughly 75% of that decrease is tied to a 3.9% plunge in margins for machinery and vehicle wholesaling.
Traders now fully anticipate a 25-basis-point rate cut at the Federal Open Market Committee meeting next week.
Futures markets also reflect near-total certainty that the Fed will deliver three quarter-point rate cuts before the end of 2025, a shift from prior expectations of just two.
S&P 500, Nasdaq 100 Set For Fresh Highs
As of 8:45 a.m. ET, equity markets were higher in premarket trading in response to the cooler inflation print and rising bets for monetary easing.
The S&P 500 – as tracked by the Vanguard S&P 500 ETF (NYSE:VOO) – is on track to open at 6,550, which would be a fresh all-time high for the index, up 0.53%.
The Nasdaq 100 is set to open at 23,992, also a record, with a gain of 0.64%. The Dow Jones Industrial Average is hovering just above 45,700, up slightly by 0.03%, also flirting with new historical highs.
Oracle Corp. (NYSE:ORCL) emerged as the top premarket performer, soaring 32% in early trading. This puts the stock on pace for its strongest session since June 1999.
Despite missing Wall Street's forecasts for revenue and earnings, the company revealed a surge in its backlog of contracted work. That backlog is tied to growing demand for cloud-based AI servers, signaling strong momentum in enterprise artificial intelligence infrastructure.
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