Wholesale prices dropped just a bit in August, the BLS reported, potentially allowing the Federal Reserve to cut interest rates at its September meeting.

The Producer Price Index showed that wholesale prices dropped by 0.1% in August. File Photo by Angelina Katsanis/UPI UPI

Sept. 10 (UPI) -- Wholesale prices dropped just a bit in August, potentially allowing the Federal Reserve to cut interest rates at its September meeting.

The Bureau of Labor Statistics released its Producer Price Index on Wednesday, which measures input costs of goods and services. It reported wholesale prices dropped 0.1% for the month, below Dow Jones estimates of a 0.3% gain, while on a 12-month basis, the headline PPI saw a 2.6% gain.

The core PPI, which excludes food and energy prices, was also off 0.1% after being expected to climb 0.3%. Excluding food, energy and trade, the PPI posted a 0.3% gain and was up 2.8% from a year ago.

The July figure was revised down to 0.7% -- after reporting 0.9%.

Stock market futures gained after the release while Treasury yields were slightly negative.

The central bank's Federal Open Market Committee is expected to release its decision on its key overnight borrowing rate when it meets on Sept. 16-17.

Odds for a larger half percentage point reduction rose slightly after the PPI release to about 10%, according to the CME Group's FedWatch gauge.

The index for final demand services fell 0.2% in August, the largest decline since moving down 0.3 % in April. The August decrease can be traced to a 1.7% drop in margins for final demand trade services. Conversely, the indexes for final demand services less trade, transportation, and warehousing and for final demand transportation and warehousing services increased, 0.3% and 0.9%, respectively, the BLS said.

Three-quarters of the August decrease in prices for final demand services can be attributed to a 3.9% decline in margins for machinery and vehicle wholesaling. The indexes for professional and commercial equipment wholesaling, chemicals and allied products wholesaling, furniture retailing, food and alcohol retailing, and data processing and related services also moved lower. In contrast, prices for portfolio management advanced 2%. The indexes for truck transportation of freight and for apparel wholesaling also increased.

Prices for final demand goods rose 0.1% in August, the fourth consecutive advance. Leading the August increase in the index for final demand goods, prices for final demand goods less foods and energy rose 0.3%. The index for final demand foods moved up 0.1%. Conversely, prices for final demand energy declined 0.4%.

A major factor in the August increase in the index for final demand goods was a 2.3% advance in prices for tobacco products. The indexes for beef and veal; processed poultry; printed circuit assemblies, boards, modules and modems; and electric power also rose. In contrast, prices for utility natural gas decreased 1.8%. The indexes for fresh and dry vegetables, chicken eggs, and copper base scrap also fell.