Summary: Prices received by producers rise by 1.0% in July, well above expected figure; annual rate moves above to 7.7%; “core” PPI also increases by 1.0%; services prices up 1.1%, goods up 0.6%; “another sign pipeline inflation pressures are ongoing”, “could prompt Fed to consider tapering sooner”.
Around the end of 2018, the annual inflation rate of the US producer price index (PPI) began a downtrend which continued through 2019. Months in which producer prices increased suggested the trend may have been coming to an end, only for it to continue, culminating in a plunge in April 2020. Figures returned to “normal” towards the end of that year but now annual rates are well above average.
The latest figures published by the Bureau of Labor Statistics indicate producer prices rose by 1.0% after seasonal adjustments in July. The increase was well above the 0.6% rise which had been generally expected and the same as June’s 1.0% increase. On a 12-month basis, the rate of producer price inflation after seasonal adjustments increased from 7.1% to 7.7%.
PPI inflation excluding foods and energy, or “core” PPI inflation, also rose by 1.0%, in line with June’s increase. The annual rate accelerated again, this time from 5.6% to 6.2%.
US Treasury bond yields rose modestly on the day. By the end of the day, 2-year and 10-year Treasury yields had both added 2bps to 0.23% and 1.36% respectively while the 30-year yield finished 1bp lower at 2.01%.
The BLS stated higher prices for final demand services accounted for around 75% of the month’s increase after they rose by 1.1% on average. Prices of final demand goods rose by 0.6%.
ANZ senior economist Catherine Birch said the figures were “another sign that pipeline inflation pressures are ongoing and that could prompt the Fed to consider tapering sooner rather than later.”
The producer price index (PPI) is a measure of prices received by producers for domestically produced goods, services and construction. It is put together in a fashion similar to the consumer price index (CPI) except it measures prices received from the producer’s perspective rather than from the perspective of a retailer or a consumer. It is another one of the various measures of inflation tracked by the US Fed, along with core personal consumption expenditure (PCE) price data.