US Business Prices Continue to Pull Back at the End of Summer

WASHINGTON—A gauge of U.S. business prices in August clocked the first monthly decline in about a year and a half, driven largely by a downturn in trade services prices.

The producer-price index, a measure of the prices businesses receive for their goods and services, declined a seasonally adjusted 0.1% in August from a month earlier, the Labor Department said Wednesday. This is the first monthly drop since February 2017.

Economists had expected price growth in August, the second-straight month business prices came in weaker than expected.

The recent downtrend appears to be driven, in part, by a volatile gauge of margins called trade services. When excluding this measure, along with food and energy, two other volatile categories, prices rose in August.

“We doubt core PPI inflation has peaked, despite the unexpected weakness of the past two months’ numbers; a sustained downward trend is even less likely,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note to clients Wednesday.

The headline index has risen on an annual, steadier basis since the beginning of 2016, while so-called core measures that remove volatile categories have also increased.

Gregory Daco, chief U.S. economist at Oxford Economics, expects businesses to exercise pricing power where possible and pass on some of these rising costs to consumers. “Still, we expect business margins to remain under pressure.”

Other parts of the report showed lingering impacts from recent trade disputes. The Trump administration has imposed tariffs on steel and aluminum, and other countries have hit back with their own retaliatory trade actions.

August new-car prices lifted the annual price growth rate to 2.0%, but as recently as April, it was minus 1.8%, “so the tariffs on imported metals prices appear to be working through,” Mr. Shepherdson said.

Meanwhile, food prices were down again on the wholesale level, as retaliatory tariffs against American farm products have softened their prices, according to Stephen Stanley, chief economist at Amherst Pierpont Securities.

The producer-price measure usually follows the same trends as other broad inflation gauges, though it doesn’t always translate into what consumers pay. Signs of possible building inflation pressures have emerged in other recent reports.

The personal-consumption-expenditures price index, a broad inflation gauge closely watched by the Federal Reserve,rose 2.3% in July from the prior year, the biggest increase since early 2012. Meanwhile, the August unemployment rate remained at 3.9% for the second straight month, a historic low for the measure.

Ramped-up inflation and continued strong jobs growth could cause the Fed to reconsider its current pace of interest-rate increases. The Fed has signaled it plans to raise its baseline interest ratetwice more before the end of 2018 at policy meetings in September and December, in 0.25-percentage-point increments.

Write to Sharon Nunn at sharon.nunn@wsj.com

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