US PPI data set to show sticky inflation ahead of key CPI report

• The US Producer Price Index is set to rise 3.3% YoY in August, at the same pace as in July.
• The Fed is widely expected to cut the policy rate in September, with increased odds for a 50 bps trim.
• The August PPI could have a limited impact on the US Dollar ahead of the CPI release on Thursday.

The United States (US) will publish the August Producer Price Index (PPI) on Wednesday. The report, produced by the Bureau of Labor Statistics (BLS), will be published one day ahead of the Consumer Price Index (CPI) data for the same month, scheduled for Thursday.

Both indexes measure inflation, with the CPI focused on the total value of goods and services consumers buy, and the PPI measuring inflation at the wholesale, or producers' level. Generally speaking, PPI increases will ultimately be reflected in the CPI as producers pass on higher prices to consumers. When released before the CPI, it is an early indicator of higher price pressures.

What to expect in the next PPI data report?

Producer inflation in the US is expected to rise at an annual rate of 3.3% in August, following a similar reading in July. The core PPI inflation, which excludes the volatile food and energy prices, is forecast to rise 3.5% YoY, easing from the 3.7% posted in the previous month. Over the month, the PPI and core PPI are seen advancing by 0.3% each.

The CPI report tends to have a broader impact on financial markets, and given that it is scheduled for release 24 hours after the PPI report, the latter can have a reduced impact on the USD.

Inflation is one of the two legs on which the Federal Reserve (Fed) bases its monetary policy decisions. Central banks tend to be hawkish with increasing inflationary pressures, and dovish when pressure eases.

Given tepid employment figures released last week, market players have already fully priced in an upcoming interest rate cut when the Fed meets next week. The question now is whether the central bank will go for a 25 basis points (bps) trim or 50 bps, with the odds of the latter increasing ahead of the event.

Even further, the BLS reported on Tuesday that the preliminary estimate of the Current Employment Statistics (CES) national benchmark revision to total Nonfarm employment for March 2025 is -911,000, meaning the labor market is cooling at a faster-than-estimated pace.

How could the US Producer Price Index report affect EUR/USD?

Ahead of the inflation-related reports, market participants have fully priced in an interest rate cut when the Fed meets on September 16-17. According to the CME FedWatch Tool, the odds for a 25 bps cut stand at 88.2%, while the remaining 11.8% is betting on a 50 bps cut.

Fed officials are currently in a blackout period, meaning policymakers should refrain from discussing monetary policy in public roughly two weeks ahead of their scheduled meeting. But beforehand, and what actually triggered markets fully pricing in a rate cut, were Chair Jerome Powell's words at the Jackson Hole Symposium.

Powell was quite explicit about the possibility of an interest rate cut. "With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance," Powell said.

Powell highlighted the challenges the Fed faces: On the one hand, US President Donald Trump's tariffs pose an upward risk to inflation, and on the other hand, Trump's immigration policies weaken the US labor market.

Market participants will initially look at headline monthly and annual figures, and then turn their attention to the core data. Generally speaking, higher-than-anticipated prints tend to boost demand for the USD, as market players will reduce odds for upcoming interest rate cuts, while the opposite scenario is also valid: softer data will weigh on the Greenback, as investors will add to bets of forthcoming interest rate cuts.

Valeria Bednarik, Chief Analyst at FXStreet, notes: "The EUR/USD pair trades above the 1.1700 threshold heading into the PPI announcement, with the US Dollar finding some near-term demand, but far from bullish. The pair recently peaked at 1.1780 and seesawed with the NFP revisions release, but was unable to find a straightforward way. Despite trading in the red, the daily chart shows that it continues to post higher highs and higher lows, which maintains the risk skewed to the upside. A near-term corrective decline is on the cards, with immediate support around the 1.1700 mark."

Bednarik adds: "Once below the aforementioned support, EUR/USD sellers could test buyers' determination at around 1.1650, a comfort zone for the pair. Clear slides below the latter expose the 1.1600-1.1610 region. Beyond the resistance at 1.1780 (weekly peak), the year's top comes next at 1.1830. Additional advances are unlikely with the PPI release, but can occur with CPI data on Thursday. In such a case, 1.1900 is the next level to watch."