As the expense of services recovered at the highest rate in almost a year, US producer prices rose a little more than anticipated in July, yet the trend stayed consistent with a decrease in inflationary stress.
Furthermore, the Labor Department's data on Friday indicated that the cost of goods aside from energy and food remained constant last month, suggesting that recent goods disinflation is solidifying. There was also a slight increase in underlying producer prices.
The information came out shortly after Thursday's report that consumer prices increased slightly in July. When the Federal Reserve meets to discuss policy next month, the majority of analysts anticipate no change in interest rates.
Although fast-growing wages continue to exert some inflationary pressure on the economy, Bill Adams, the chief economist of Comerica Bank in Dallas, said that the fall should see consumer prices continue to decline.
Last month saw a rise of 0.3% in the index of producer prices for final demand. The PPI was steady in June, rather than nudge up by the earlier reported 0.1%, as a result of lower adjustments to the original data.
The PPI was predicted to rise by 0.2%, according to economists surveyed. Some said that because of the data's decrease for June, the PPI's increase was as anticipated. The PPI climbed by 0.8% over the course of the 12 months leading up to July, following a 0.2% gain in June, encouraged by a lower base of comparison from the previous year.
Goods disinflation
After being steady in June, the price of goods increased by 0.1% in July. Energy costs were constant, mainly offsetting a 0.5% increase in food prices. Prices for the so-called core products, which don't include volatile energy and food components, were constant in July after declining 0.2% in June.
Will Compernolle, a macro strategist of FHN Financial in New York, said that the disinflation of consumer goods prices during the previous two months has a solid foundation now and that there should be more to come. The Federal Reserve and market participants have been anticipating disinflation in this area for some time, mostly as a result of supply chain stabilization.
Wall Street stocks had a mixed day. Compared to a number of other currencies, the dollar increased. Prices for US Treasury bonds dropped.
Future price reductions are another expectation of consumers.
Consumers' one-year inflation estimates decreased from 3.4% in July to 3.3% in August, according to the University of Michigan's study on consumer mood. For three straight months, they have remained steady. Inflation expectations for the next five years decreased from 3.0% to 2.9% in the previous month and have stayed within a tight range of 2.9% to 3.1% for 24 of the past 25 months.
However, the battle to return inflation to the Fed's 2% objective is far from finished. According to the Labor Department's data, the PPI's narrower measure —which excludes the components related to food, energy, and trade services —rose by 0.2% in July after edging up by 0.1% in June. The core PPI rose 2.7% in the year ending in July, mirroring June's rise.
With the support of the CPI and PPI statistics, experts predicted that the core personal consumption price index rose by 0.2% in July, mirroring June's increase. After rising 4.1% in June, the core PCE price index is expected to increase 4.3% on an annual basis. This index represents one of the inflation metrics the Fed monitors to determine its monetary policy. Negative base effects are to blame for the increase in the core PCE rate as well as for all of July's inflation figures.
Later this month, statistics from the PCE price index will be released.
We are still in danger, according to Raymond James senior economist Eugenio Aleman, despite the fact that disinflationary pressures are still intensifying and inflation is approaching the Fed's 2% objective.