US producer prices picked up in July, primarily due to increases in certain service categories, highlighting the choppy nature of getting inflation back down to target.
(Bloomberg) — US producer prices picked up in July, primarily due to increases in certain service categories, highlighting the choppy nature of getting inflation back down to target.
The producer price index for final demand, as well as the core index which excludes food and energy, both rose by 0.3% in July, according to the Bureau of Labor Statistics. While those came in slightly more than forecast, downward revisions to the prior month tempered some of the strength.
Normalizing global supply chains, tepid demand abroad, and a broader shift in consumer spending toward services and away from goods have generally helped alleviate inflationary pressures at the producer level over the last year. But headwinds are building again as oil prices climb.
Service costs rose by the most in nearly a year, reflecting increases in categories including portfolio management, outpatient care and passenger transportation. Several categories from the PPI report, notably in health care, are used to calculate the personal consumption expenditures price gauge — the Federal Reserve’s preferred inflation measure — that will be released later this month.
“The underlying trends show that PPI inflation is reverting to its pre-pandemic run rate, though progress is likely to be slower” in the second half of the year compared to the first half, Matthew Martin and Oren Klachkin of Oxford Economics said in a note.
“While these data will comfort Fed officials, policymakers will likely maintain a hawkish tone and keep a close eye on whether last month’s jump in services prices persists in the months ahead,” they said.
Within health care, inflation in hospital outpatient care and nursing home care accelerated. Meanwhile, physician care costs were little changed. Brokerage services and investment advice, a category that also feeds into PCE, jumped in July.
The S&P 500 opened lower, while Treasury yields and the dollar rose.
The prices of goods rose slightly, boosted by the biggest increase in food costs since November. Core goods prices, excluding food and energy, were flat after a decline in June. Weaker goods prices in recent months have flowed through to consumers in the form of lower prices — something known as deflation.
The data come on the heels of fresh inflation data out Thursday that showed a key measure of consumer prices, excluding food and energy, posted the smallest back-to-back monthly gains in more than two years. That will likely keep the US central bank from raising interest rates at its September meeting.
Excluding volatile food and energy components, the so-called core PPI rose 0.3% in July and was up 2.4% from a year ago. Stripping out trade services as well, the PPI advanced 0.2% on the month, and 2.7% year over year.
Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, fell for a sixth month. Excluding food and energy, these costs fell by the most since October.
–With assistance from Molly Smith.
(Updates with economists’ comment)
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