The producer-price index release was the first of two key inflation prints this week. The report was mixed: year-on-year headline PPI growth picked up noticeably, but core metrics did not show a new broadening of price pressures. That is why the market reaction was fairly muted.

So, on a monthly basis, the headline producer-price index rose 0.4% in August, after a modest 0.1% increase in the prior month. On a year-on-year basis, the reading accelerated from 4.8% straight to 5.4%, exceeding the market forecast of 5.3%.

At first glance, these figures look decidedly hawkish. However, the report's composition shows that a significant part of August's acceleration was driven by energy rather than by broad-based, sustained price increases.

The key driver was final-demand goods, whose prices jumped 1.1% month-on-month. Within that category, the energy component rose 4.2%. Diesel was particularly notable, surging about 24% and accounting for more than one-third of the monthly gain in final-demand goods. Gasoline, jet fuel and fuel oil also rose.

In other words, the main inflation impulse in August came from the energy segment, which is traditionally one of the most volatile components.

One unexpected anchor in the report was the services sector. There, prices rose only 0.1% month-on-month. The increase was mainly related to transportation and warehousing, where prices rose 2.3%, while trade services actually fell 0.2%. Final-demand prices excluding food, energy and trade services rose 0.3% month-on-month, after a 0.4% increase in July.

Pay particular attention to core PPI, which excludes food and energy. In August, it slowed slightly to 0.2% m/m after a 0.3% rise in July (consensus was 0.3%). On a year-on-year basis, the core PPI registered at the forecast level, rising to 4.6% (from 4.3% previously). Yes, on the one hand this is noticeably above the Fed's target range, but on the other hand the current dynamics do not indicate a sharp strengthening of fundamental inflationary pressure. Moreover, the production chain remains highly dependent on energy: prices for processed intermediate goods rose 1.8%, with more than 80% of that gain attributable to energy, and diesel accounted for almost two-thirds of the increase.

PPI is not a direct analog of consumer inflation. Producer-level prices only create potential pressure on final prices, and not every change in costs is passed through to consumers. For the Federal Reserve, what matters especially is the repeatability of the movement and its breadth across many categories. The August PPI report does not allow us to conclude that price acceleration has become self-sustaining.

That said, we cannot entirely ignore the release. Headline PPI's rise to 5.4% y/y indicates a noticeable strengthening of the inflation backdrop, and the acceleration in intermediate-goods prices "reminds" us that the energy shock can propagate through the production chain. If such dynamics persist and feed into consumer prices, hawkish expectations about further Fed action would strengthen materially.

Therefore, Friday's CPI will be a real test of the inflation signal. In setting future rate policy, the Fed does not react to a single volatile fuel price spike but looks at the persistence of inflation stripped of the most unstable components. So Thursday's data alone are not sufficient grounds for a sharp revision of monetary-policy expectations. And although the headline PPI is indeed striking, the core indicators argue more for caution than for signaling a new sustained (that is the key word) inflationary wave.

That, apparently, explains the muted selling of EUR/USD. After the report, the pair briefly fell toward the 1.16 area, but the bears failed to develop a meaningful downside impulse. Quotes remain inside the 1.1600–1.1650 range in which EUR/USD has traded all week. The market, in essence, did not get a strong enough argument from PPI either for a durable turn in favor of the dollar or for a continued euro advance.

In these conditions, opening shorts on EUR/USD remains quite risky: the fundamental backdrop has not become unequivocally bearish for the pair. But it is too early to draw final conclusions. On Friday, September 11, the US CPI for August — a more important inflation indicator for the greenback — will be published. That report should finally tip the scales either in favor of the dollar (if core pressure strengthens) or against it if the moderate core inflation dynamics are confirmed.