US producer prices unexpectedly fall in June

[WASHINGTON] US producer prices unexpectedly fell in June, another indication that inflation was retreating before the recent escalation in the Middle East conflict.

The Producer Price Index for final demand dropped 0.3 per cent last month after a downwardly revised 0.6 per cent increase in May, the Labor Department’s Bureau of Labor Statistics said on Wednesday (Jul 15).

Economists polled by Reuters had forecast the PPI unchanged after a previously reported 1.1 per cent advance in May. In the 12 months through June, the PPI increased 5.5 per cent after rising 6.0 per cent in May.

A 1.4 per cent decline in goods prices, the largest since July 2022, accounted for the decrease in the PPI over the month. Goods prices were weighed down by a 6.4 per cent drop in the cost of energy products. Wholesale food prices fell 0.6 per cent. Prices for services rose 0.2 per cent.

The ceasefire between the United States and Iran collapsed last week after commercial tankers came under fire in the Strait of Hormuz, triggering military strikes between the United States and Iran. Oil prices rose to a four-week high after Washington reimposed a naval blockade of Iran.

The government reported on Tuesday that the Consumer Price Index dropped 0.4 per cent in June, the largest decline since April 2020, after increasing 0.5 per cent in May. The decrease, which mostly reflected a decline in energy prices, slowed the annual increase in consumer inflation to 3.5 per cent from 4.2 per cent in May.

The Federal Reserve tracks the Personal Consumption Expenditures Price Indexes for its 2 per cent inflation target.

Prior to the PPI data, economists estimated that PCE inflation excluding the volatile food and energy components rose 0.2 per cent in June after climbing 0.3 per cent in May. That would translate into a 3.3 per cent year-on-year increase in the so-called core PCE inflation after rising 3.4 per cent in May.

Financial markets expected the US central bank to keep its benchmark overnight interest rate unchanged in the 3.50 per cent-3.75 per cent range this month. Traders, however, continued to see a rate hike in September.

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US consumer inflation slows more than expected in June

Inflation was last below 2 per cent in early 2021. Fed Chair Kevin Warsh told lawmakers on Tuesday that the central bank had “no tolerance for persistently elevated inflation.” REUTERS