WASHINGTON, Sept 10 (Reuters) U.S. producer prices unexpectedly declined in August, pointing to easing price pressures and hinting at weaker domestic demand amid trade tariffs and a fragile labor market.

According to the Labor Department, the drop was driven by a compression in trade services margins and only a mild rise in the cost of goods. Analysts said the data suggests U.S. businesses may be absorbing some of the tariff impact on imports rather than passing costs on to consumers.

The report comes just days before the Federal Reserve’s September policy meeting, where a quarter-point interest rate cut is widely expected. The Fed paused its easing cycle in January, citing uncertainty over the economic fallout from President Donald Trump’s sweeping tariffs, but softening inflation and labor market concerns now strengthen the case for renewed cuts.

The cooling in producer inflation underscores that despite high import duties, price pressures remain contained a sign that demand across the U.S. economy may be losing momentum.