US Wholesale Inflation Rises More Than Expected, Reversing Cooling Trend
Minneapolis, CNN — The Bureau of Labor Statistics reported on Friday that US wholesale inflation rose more than expected in July, indicating a reversal of a yearlong cooling trend. The Producer Price Index (PPI), which tracks the average change in prices that businesses pay to suppliers, increased by 0.8% annually, surpassing June’s revised increase of 0.2% and exceeding expectations for a 0.7% gain.
The report also showed that producer price hikes rose by 0.3% from June to July, marking the highest monthly increase since January. The PPI is a closely watched inflation gauge as it reflects average price shifts before they reach consumers and acts as a proxy for potential price changes in stores.
According to Kurt Rankin, senior economist for PNC Financial Services, services and the demand for services were the primary factors contributing to the higher producer prices. Services prices saw a 0.5% increase from June, the largest monthly increase for the category since March 2022, according to BLS data.
Rankin highlighted that consumer spending on services is driving the demand, which in turn is increasing producers’ costs for raw materials and transportation needs. He added that these increased costs are eventually passed on to consumers, creating an unpleasant cycle of rising prices.
“The numbers over the past six months have been much more encouraging, but it’s a reminder that the Federal Reserve has an eye toward the possibility of inflation flaring up again,” Rankin stated.
Notably, the latest report comes a day after the Consumer Price Index revealed a 3.2% annual increase in prices for July, slightly below economists’ expectations. The increase primarily resulted from year-over-year comparisons with a milder inflation number from the previous year.
Regarding the PPI increase, Rankin mentioned that similar base effects played a role in the headline figure. While the increase to 0.8% may not tell the whole story, the index’s previous five out of seven months’ decrease suggests ongoing producer cost pressures. Annualizing the 0.3% monthly gain would place the PPI rate at approximately 3.6% and the core rate at 3.8%.
When excluding the more volatile food and energy categories, core PPI rose by 2.4% annually in July, aligning with the figures seen in June but slightly surpassing economists’ expectations for a slight cooling. On a month-to-month basis, core PPI saw a 0.3% increase, the highest monthly gain since January.
Economists Matthew Martin and Oren Klachkin of Oxford Economics emphasized that while PPI inflation is returning to its pre-pandemic rate, progress may be slower in the second half of 2023. They noted that Federal Reserve officials would likely maintain a hawkish tone and closely monitor whether last month’s surge in services prices persists in the coming months.
The release of the report caused US stock futures to tumble amid concerns that the Fed could continue to raise rates to combat inflation. However, the Dow has since recovered its losses and is back in positive territory.
Despite the implications of the data, Rankin cautioned against drawing immediate conclusions, stating that “one month does not make a trend.” However, he acknowledged that the possibility of a resurgence in inflation remains, particularly if there is an increase in energy prices.
“The fact that energy prices were not a contributor to this month’s reading makes this jump in numbers a stark reminder that the Federal Reserve’s fight against inflation and their rhetoric regarding that fight is going to remain hawkish in the near term,” said Rankin.
Overall, the latest figures suggest that inflationary pressures persist in the US economy, and policymakers will continue to closely monitor price trends to ensure price stability and economic growth.