Wholesale Inflation In The US Rose More Than Expected In July 

According to reports from the Bureau of Labor Statistics, US wholesale inflation rose more than it was expected to throughout the month of July, reversing the yearlong trend of cooling. 

According to consensus estimates on Refinitiv, the Producer Price Index (PPI), which tracks the average change in prices that businesses pay to their suppliers, rose by 0.8% annually, which is above June’s increase of just 0.2%. The expected rise was 0.7%. 

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“Services and demand for services were the primary culprits behind the lift higher for producer prices. Services prices rose 0.5% from June, the highest monthly increase since March 2022 for the category,” said Kurt Rankin, senior economist for PNC Financial Services.

“The inflation story now, be it for producers or consumers, is demand. Mainly that’s consumers still spending money on services. The food index, which had declined for three straight months, rose 0.5% in July, suggesting a 6.3% annualized pace of inflation,” he told CNN.

“Consumers continue to go out and spend money, and as long as consumers are spending money, that’s going to create demand from producers, so that’s going to drive up their costs for their raw materials, for their transportation needs, etc. and they’re going to pass those prices on to consumers,” he added.

“The numbers over the past six months have been much more encouraging, but it’s a reminder that the Federal Reserve has an eye toward the possibility of inflation flaring up again,” he said.

The Consumer Price Index showed that prices rose by 3.2% annually in July, which is below the 3.2% increase that economists were expecting. 

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“Similar base effects played their role in the headline PPI increase as well. The tick upward to 0.8% doesn’t tell the whole story, because the index decreased in five of the previous seven months. 

Annualizing the 0.3% monthly gain, however, would put the PPI rate at about 3.6% and core at 3.8%. So the July number does suggest that there’s still some producer cost pressures,” said Rankin.

“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 2023] than [the first half]. While this 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,” Oxford Economics economists Matthew Martin and Oren Klachkin wrote.

Ranking said “We’re seeing energy prices, oil prices, rising over the past few weeks. Any flareup in oil prices goes straight through to not only manufacturing costs, but transportation of goods to market, even transportation of food to restaurants. So even services, leisure and hospitality get hit when energy prices spike, so that possibility is always there.”

“So the fact that energy prices were not a contributor to this month’s reading makes this number jumping a bit a stark reminder that the Federal Reserve’s fight against inflation and their rhetoric regarding that fight is going to remain hawkish in the near term.”