The Economy

U.S. Producer Prices Rise 0.1% in June

The tepid gain in the PPE points to “relatively subdued inflation, as most of the increase was driven by volatile categories of goods and services.”
Matthew HellerJuly 12, 2019
U.S. Producer Prices Rise 0.1% in June

U.S producer prices rose slightly in June, providing further evidence of a low inflation environment as the Federal Reserve considers a possible interest rate cut.

The Labor Department reported Friday that the producer-price index rose a seasonally adjusted 0.1% in June from a month earlier, with an acceleration in the cost of services being offset by cheaper energy goods. Economists had expected the reading to be flat.

In the 12 months through June, the PPI rose 1.7%, the smallest gain since January 2017, slowing from a 1.8% increase in May.

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According to The Wall Street Journal, the report points to “relatively subdued inflation, as most of the increase was driven by volatile categories of goods and services.”

Energy prices plummeted 3.1% in June from the previous month, while trade services jumped 1.3%. Prices for food, which also show large month-to-month swings, rose 0.6% in June.

Inflation has been muted so far this year despite a strong labor market and the longest economic expansion on record. “Weak price pressures have become a major worry for the Federal Reserve, which targets 2% inflation,” the WSJ noted. “U.S. central bankers fear following Japan and Europe into a low-inflation trap that could eventually limit their ability to fight economic downturns.”

The Fed has signaled it will cut interest rates at its July 30-31 meeting but some economists doubt there will be further cuts before the end of the year.

“We don’t anticipate any significant acceleration in inflation through the remainder of this year,” Ryan Sweet, a senior economist at Moody’s Analytics, told Reuters. “Therefore, the Fed can cut rates in July and then keep them unchanged through 2020.”

Excluding the volatile food, energy and trade services components, producer prices were unchanged in June after rising 0.4% for two straight months. The so-called core PPI increased 2.1% in the 12 months through June after advancing 2.3% in May.

A 5.0% drop in gasoline prices accounted for nearly 60% of the decline in the cost of goods last month.