The producer price index tracks costs at the wholesale level for both goods and services.
Producer inflation came in cooler than expected in July, adding ammunition to the arguments in favor of Federal Reserve interest-rate cuts beginning in September. The big test will be Wednesday’s release of July consumer price index data.
The producer price index increased by 0.1% in July, less than the 0.2% gain in June, and below the 0.2% rise in July that economists were forecasting. That brought the year-over-year increase in the measure of wholesale prices to 2.2%, the Bureau of Labor Statistics said on Tuesday, versus a 2.6% increase in the year through June.
The core PPI, which excludes food and energy prices, was unchanged in July. That compares with the consensus estimate for a 0.2% gain, and a 0.3% increase in June, which was revised down on Tuesday from a previously reported gain of 0.4%. It was good for a year-over-year gain of 2.4%, down from a gain 3% in the 12 months through June.
The PPI measures prices for a basket of goods and services at the wholesale level in the U.S., ranging from raw materials to finished products. Economists closely watch the PPI because it tends to lead the consumer price index, as changes in wholesale prices eventually flow through to customers. The BLS will report the CPI for July on Wednesday.
Producer-price inflation has been more volatile than consumer inflation over the past year. The monthly change in the index has ranged from an increase of 0.6% to a decline of 0.3%. The year-over-year change in the PPI hit a postpandemic peak of 11.6% in March 2022, before falling to less than 1% in late 2023. Unwinding supply-chain snarls and falling commodity prices helped to push the index lower during several months last year.
Services prices in the PPI have been the driver of producer inflation of late, but that reversed in July. Goods prices in the PPI were up 0.6% last month, driven by a 1.9% jump in energy prices during the month. Excluding food and energy, goods prices were up 0.2% last month.
Meanwhile, prices of services components in the PPI fell 0.2% in July—their largest monthly decline since March 2023. The fall was largely due to a 1.3% drop in so-called trade services, which represent the profit margins received by wholesalers and retailers. That could be a function of rising inventories at U.S. businesses and companies discounting to move merchandise. Excluding trade, transportation, and warehousing, services prices were up 0.3% last month.
Contrast that July dynamic with June, when wholesale prices for services rose 0.6%, and prices for goods decreased 0.5% as energy prices declined sharply.
The Fed has a 2% annual inflation target, based on yet another measure: the personal-consumption expenditures price index. It includes components closely resembling categories of both the PPI and CPI surveys.
