A key measure of wholesale inflation rose less than expected in July, opening the door for the Federal Reserve to begin cutting interest rates further.
this producer price indexThe U.S. Department of Labor’s Bureau of Labor Statistics reported on Tuesday that an index measuring the prices at which producers sell goods and services rose 0.1% this month. Excluding volatile food and energy components, core producer prices were flat.
Economists surveyed by Dow Jones had been expecting a 0.2% gain across all items and the core reading.
Another core indicator, which excludes trade services, showed growth of 0.3%.
Compared with the same period last year, the overall PPI increased by 2.2%, a sharp decrease from 2.7% in June.
Stock futures rose on the news, while Treasury yields fell.
Although final demand goods prices rose 0.6%, the largest increase since February, the wholesale inflation data was relatively tame, mainly due to a 1.9% increase in energy prices, including a 2.8% increase in gasoline prices.
The services industry fell 0.2%, the largest decline since March 2023, according to the U.S. Bureau of Labor Statistics. Prices for trade services fell by 1.3%, while wholesale margins for machinery and vehicles fell by 4.1%. Portfolio management grew 2.3%, partially offsetting lower service prices.
The PPI is considered a leading indicator of inflation as it measures pipeline inflation from the perspective of manufacturers and suppliers of goods and services. The counterpart price index released on Wednesday is the Consumer Price Index, which measures the actual prices consumers pay in the market. Economists also expect headline and core consumer price indexes (CPI) to rise 0.2% on month.
Both indicators are closely watched for signs of inflation. Both CPI and PPI are included in the calculation, although the Fed looks more closely at the Commerce Department’s personal consumption expenditures price index.
The latest inflation data comes as the market has fully priced in an interest rate cut at the Federal Open Market Committee’s September meeting. The main question now is whether the central bank will cut interest rates by a quarter or half a percentage point. The current evaluation of it by the futures market is uncertain.
Federal Reserve officials have vowed to continue fighting inflation until they reach their 2% target, and the latest data are largely in line.
A survey released by the New York Federal Reserve Bank on Monday showed that consumers’ views on inflation three years from now fell to 2.3%, the lowest level in the survey’s 11 years.
In addition, surveys also show that consumers, especially those from low-income groups, are beginning to suffer more from inflation. For example, the perceived likelihood of failing to make minimum debt payments in the next three months jumped to 13.3%, the highest level since April 2020, with the largest portion of the 1 percentage point monthly increase coming from households earning less than $50,000 a year.
Expectations for access to credit also fell, with expectations for household spending next year falling to their lowest level since April 2021.
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