Producer Prices Increased by Less Than Forecast in July

Inflation pressures in the U.S. showed further signs of cooling in July as producer prices rose just 0.1 percent, less than expected.

According to the Bureau of Labor Statistics, there was only a slight increase in the producer price index (PPI) for final demand, which tracks the average change in selling prices received by domestic producers of goods and services for their output sold to  households, governments, and foreign buyers.

Economists had forecast a 0.2 percent rise. Over the past year, the PPI has climbed 2.2 percent, reflecting a continued moderation in inflation. A month earlier, prices had climbed 0.2 percent and were up 2.6 percent over 12 months.

Excluding the more volatile categories of food and energy, the core PPI remained unchanged in July—the tamest reading in four months. Compared to the same period last year, the core index rose 2.4 percent.

Energy prices jumped 1.9 percent in July, the biggest gain since February. Energy prices had fallen in each of the previous two months. Food prices climbed 0.6 percent, also the largest gain since February.

Prices for goods rose 0.6 percent. One quarter of that increase was caused by a 2.8 percent rise in gasoline prices. Prices for goods excluding food and energy rose 0.2 percent.

Services prices fell 0.2 percent, the biggest decline since March 2023. This decline was driven by a 1.3 percent decline in a measure of retail and wholesale margins, the difference between what merchants pay for goods and what they sell them for, called trade services.

Prices for transportation and warehousing rose 0.4 percent following three months of decline. This was the largest increase since February.

Prices for services excluding trade services and transportation and warehousing rose 0.3 percent.

The PPI also tracks prices for “intermediate demand,” which are prices paid by businesses for goods and services that are later transformed for sale to households, governments, and foreign buyers. Prices for processed goods for intermediate demand rose by 0.7 percent, unprocessed goods rose 3.6 percent, and prices for services rose 0.3 percent

These mild producer price numbers come ahead of the more closely watched consumer price index (CPI), due out on Wednesday. With inflation showing signs of easing and July’s job market data weaker than anticipated, the consensus on Wall Street is that the Fed will begin cutting interest rates next month.

Stock futures rallied on the news of softer than expected PPI as the report is seen as increasing the pressure on the Fed to cut rates.