US producer prices climb more than expected in June

US producer prices climb more than expected in June

Wholesale prices in the US rose by more than expected last month, driven by services, but remained well off their recent highs, data on Friday showed.

Core producer prices, an underlying measure which strips out volatile items like food and energy, rose 2.3 per cent year-on-year in June, on par with the previous month’s rise, according to the Bureau of Labor Statistics.

That topped expectations for a 2.2 per cent increase, according to a Refinitiv survey of economists. However it also was the joint-slowest reading since January 2018.

“The core increase was all in the services sector, up 0.4 per cent, while core goods prices were unchanged for the third straight month,” noted Ian Shepherdson, economist at Pantheon Macroeconomics.

The headline producer price index rose 0.1 per cent month-on-month in June, and 1.7 per cent from a year ago, ahead of expectations.

“It’s hard to worry about PPI inflation,” added Mr Shepherdson. “Goods inflation is slowing sharply, and the trend in the year on year rate for services ex-trade services has hovered around 2.5% for the past year. The inflation threat right now is CPI pass-through from tariffs and rising labour costs in low-productivity services sectors.”

Indeed, inflation figures released on Thursday showed core consumer prices in June rising by the most in one and a half years. The data complicate the outlook for the Federal Reserve, which is currently expected to deliver an interest-rate cut at its monetary policy meeting this month.

Fed chair Jay Powell said in Congressional testimony this week that there is a “risk that weak inflation will be even more persistent than we currently anticipate” and there is some concern the firmer price figures could cloud the picture for policymakers.

However, some economists cautioned against relying too heavily on one data point and noted it is unclear whether the price increases are unlikely to be sustained. Moreover, the Fed will also weigh up long-run inflation expectations which have remained sluggish.

“Low inflation expectations, as well as subdued wage growth, is concerning to the Fed in regards to the outlook for future inflation,” noted economists at Bank of America.

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