July 23, 2018

Producer Price Index (PPI) Declines in July, Raising Potential Disinflation Concerns

11 August 2017, 04:53 | Joann Bryant

Producer Price Index (PPI) Declines in July, Raising Potential Disinflation Concerns

Producer Price Index (PPI) Declines in July, Raising Potential Disinflation Concerns

The Labor Department said on Friday its Consumer Price Index edged up 0.1 percent last month after being unchanged in June.

The figures follow data Thursday showing wholesale prices unexpectedly decreased 0.1 percent in July from the prior month, the first drop in almost a year, reflecting widespread declines across groups such as chemical wholesalers, retail apparel and airline services. That shows that inflation pressures remain well under control.

Prescription drug prices jumped 1.3 percent in July after increasing 1.0 percent in the prior month.

Thursday's figures suggest that today's figures may be on the softer side, which could see the markets right-off a final rate hike for the year, which will be Dollar negative for the day. That lifted the year-on-year increase in the CPI to 1.7 percent from 1.6 percent in June.

The U.S. inflation slowdown may be getting longer, even after most economists and Federal Reserve policy makers judged it to be transitory.

Almost 80% of the decline this month was fueled by a 0.2% decrease in the cost of services.

The Fed has raised rates twice this year and expects to hike again, likely in December.

US nonfarm business sector labor productivity increased only 0.9 percent during the first quarter of 2017. But it has since backtracked and in June registered a 12-month gain of just 1.4 per cent.

The costs of hotel and motel stays plunged a record 4.9 per cent in July, the biggest one-month on records that go back to 1997. There was a significant decline in gas prices for the month which dragged the overall energy index lower while gasoline prices were unchanged.

There was a strong increase in medical care goods for the month and a steady increase across the services sector.

Excluding food and energy prices, core producer prices still dipped by 0.1% in July after creeping up by 0.1% in June.

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