US producer prices rose in July, driven by strong services.

US producer prices rose in July, driven by strong services.

Producer Prices

U.S. Producer Prices Show Slight Increase, Reflecting Moderate Inflationary Pressures

In July, U.S. producer prices experienced a slightly higher-than-expected increase, primarily driven by a rebound in the cost of services. This momentum, however, remains consistent with a moderation in inflationary pressures. The latest data from the Labor Department reveals that the producer price index for final demand rose by 0.3% last month. This comes as a revision from the previously reported 0.1% increase in June, which was restated to show no change. The annual increase in the PPI reached 0.8% in July, following a 0.2% rise in June. The lower base of comparison from the previous year contributes to this boost. Analysts polled by ANBLE had forecasted the PPI to climb 0.2% on a monthly basis and advance by 0.7% year-on-year.

The government’s recent report on consumer prices in July further strengthens the expectations that the Federal Reserve will maintain its current interest rates next month. The moderate rise in consumer prices aligns with the central bank’s stance on interest rates. Since March 2022, the U.S. Federal Reserve has increased its benchmark overnight interest rate by 525 basis points, bringing it to the present range of 5.25%-5.50%.

A Closer Look at Services and Goods

In July, the cost of wholesale services experienced a significant bounce, rising by 0.5%. This increase is the largest recorded since August of the previous year, following a 0.1% dip in June. Portfolio management fees played a significant role in driving this surge, accounting for 40% of the overall rise in services. Additionally, machinery and vehicle wholesaling, outpatient care, chemicals and allied products wholesaling, as well as securities brokerage, dealing investment advice, and related services, also witnessed notable increases. However, the cost of food and alcohol retailing experienced a decline of 2.5% in margins, while the cost of freight and cargo transportation also decreased during this period.

Goods prices, on the other hand, experienced a slight uptick of 0.1% in July, following an unchanged reading in June. This increase was primarily driven by a 0.5% rebound in the cost of food, partially offset by stagnant energy prices. Removing the volatile food and energy components, the core goods prices remained unchanged in July after experiencing a 0.2% decline in June.

Core Producer Price Index (PPI)

The narrower measure of the PPI, which excludes food, energy, and trade services components, grew by 0.2% in July, slightly higher than the 0.1% increase recorded in June. This core PPI also matched the 2.7% rise seen in June for the 12-month period, indicating a level of stability in underlying prices.

In conclusion, the U.S. producer prices displayed a slightly higher-than-expected increase in July, driven by a rebound in the cost of services. Despite this uptick, the overall trend suggests a moderation in inflationary pressures. The government’s report on consumer prices further supports the expectation that the Federal Reserve will maintain its interest rates. While wholesale services experienced significant growth, certain sectors, such as food and alcohol retailing, saw declines in margins. Similarly, goods prices saw a modest increase, primarily driven by food costs, while core goods prices remained unchanged. Overall, the core PPI remains relatively stable, indicating a degree of consistency in underlying prices.