US producer prices increased more than forecast in June

[WASHINGTON] A measure of underlying US producer prices increased in June by more than forecast, driven by trade services and indicating inflation may be starting to stabilise.

Excluding food and energy, producer prices increased 2.3 per cent in June from a year earlier, matching the prior month's annual advance and more than the median forecast of 2.1 per cent, a Labour Department report showed Friday. The overall producer-price index rose 0.1 per cent for a second month, also exceeding expectations for no change.

The data follow a report Thursday showing consumer prices also picked up, which may complicate Fed policy makers' decision on interest-rate policy later this month. The stronger figures indicate companies are seeing at least some inflation that could filter through to the broader economy.

Final demand services rose in June by the most since October 2018. Trade indexes measure changes in margins received by wholesalers and retailers. Retail margins for fuels surged by the most since November, while margins also picked up at wholesalers of machinery and at retailers of health and beauty products and apparel and footwear.

Core consumer inflation topped expectations in separate data released Thursday, showing that the index which excludes food and energy rose the most since January 2018. There were gains across categories, from shelter to clothing and used vehicles.

President Donald Trump has repeatedly called on central bank officials to cut interest rates to spur economic growth, citing muted inflation as one reason to cut. Bond traders widely expect officials to do so at their next meeting, while Fed leaders emphasize political independence.

In Capitol Hill testimony this week, Fed Chairman Jerome Powell said the economy continues to face downside risks including trade tensions and sluggish inflation, strengthening the case for a reduction in interest rates.

Producer prices excluding food, energy, and trade services - measure preferred by economists because it strips out the most volatile components - were unchanged from the prior month, and rose 2.1 per cent from a year earlier after climbing 2.3 per cent.

The cost of goods fell 0.4 per cent after falling 0.2 per cent the previous month. Services prices increased 0.4 per cent last month after a 0.3 per cent gain in May.

Energy prices slumped 3.1 per cent from the prior month and food costs rose 0.6 per cent, the most this year.

BLOOMBERG