Summary: US producer price index (PPI) up 0.1% in June, less than expected; annual rate slows to 0.2%; “core” PPI up 0.1%; ANZ: helps cement disinflation narrative; Treasury yields fall noticeably; 2024 rate-cut expectations harden; goods prices steady, services prices up 0.2%.
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 were well above the long-term average through 2021, 2022 and the first quarter of 2023.
The latest figures published by the Bureau of Labor Statistics indicate producer prices increased by 0.1% after seasonal adjustments in June. The result was less than the 0.2% rise which had been generally expected but it also contrasted with May’s 0.4% fall. On a 12-month basis, the rate of producer price inflation after seasonal adjustments and revisions slowed from 1.0% in May to 0.2%.
Producer prices excluding foods and energy, or “core” PPI, increased by 0.1% after seasonal adjustments. The result was also less than expected 0.2% increase but it was in line with increases in April and May. The annual rate slowed from May’s revised figure of 2.6% to 2.4%.
“Taken together with yesterday’s below-expectations CPI data, this has helped to cement the disinflation narrative within markets and make them question how many more hikes will be needed,” said ANZ economist Jack Chambers.
US Treasury bond yields fell noticeably on the day. By the close of business, the 2-year Treasury yield had shed 10bps to 4.65%, the 10-year yield had lost 9bps to 3.77% while the 30-year yield finished 5bps lower at 3.90%.
In terms of US Fed policy, expectations of a lower federal funds rate in the first half of 2024 hardened. At the close of business, contracts implied the effective federal funds rate would average 5.11% in July, 3bps more than the current spot rate, and then increase to an average of 5.30% in August. December futures contracts implied a 5.32% average effective federal funds rate while June 2024 contracts implied 4.60%, 47bps less than the current rate.
The BLS stated higher prices for final demand goods remained unchanged on average. Prices of final demand services increased by 0.2%.
The producer price index 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.