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July PPI unchanged for the first time in 7 mths

Washington

US producer prices were unchanged in July for the first time in seven months as a modest increase in the cost of goods was offset by a drop in services, but underlying producer inflation continued to push higher.

The Labor Department said on Thursday that the unchanged reading in its producer price index (PPI) for final demand followed a 0.3 per cent increase in June. In the 12 months till July, the PPI advanced 3.3 per cent, slowing after June's 3.4 per cent increase.

Economists polled by Reuters had forecast the PPI increasing 0.2 per cent in July and rising 3.4 per cent year-on-year.

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A key gauge of underlying producer price pressures that excludes food, energy and trade services rose 0.3 per cent last month. The so-called core PPI rose by the same margin in June.

In the 12 months till July, the core PPI increased 2.8 per cent after rising 2.7 per cent in June.

Last month's weak PPI reading is likely temporary against the backdrop of a strong labour market and robust economy. The Trump administration's import tariffs on lumber, steel and aluminium, as well as a range of Chinese goods, are also expected to boost price pressures.

The Federal Reserve's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, increased 1.9 per cent in June. The PCE price index hit the US central bank's 2 per cent inflation target in March for the first time since December 2011.

In July, prices for goods edged up 0.1 per cent after a similar gain in June. Goods prices were lifted by a 0.7 per cent increase in the cost of pharmaceutical preparations. There were also increases in the prices of motor vehicles and liquefied petroleum gas, but the cost of electricity fell 1.6 per cent.

There were also decreases in the prices of meat, oilseeds and nonferrous scrap.

The cost of services dipped 0.1 per cent, the biggest drop in seven months, after increasing 0.4 per cent in June. A 12.7 per cent drop in the index for fuels and lubricants retailing led the decline in the cost of services last month.

The cost of healthcare services edged up 0.1 per cent as a 0.4 per cent drop in prices for hospital outpatient care was offset by increases in hospital inpatient care. Healthcare prices gained 0.2 per cent in June.

Those costs feed into the core PCE price index. REUTERS