Prices Paid to Producers in U.S. Increase More Than Forecast

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Prices paid to U.S. producers rose in July by more than expected, suggesting that higher commodity costs and supply bottlenecks are still adding to inflationary pressures for companies.

The producer price index for final demand increased 1% from the prior month and 7.8% from a year earlier, Labor Department data showed Thursday. Excluding volatile food and energy components, the so-called core PPI also rose 1%, a second-month of record gains.

Compared with July 2020, the core index was up 6.2%. The advances in the overall PPI and core measure from a year ago were the largest in annual data back to 2010.

The median forecasts in a Bloomberg survey of economists called for a 0.6% month-over-month advance in the overall PPI and a 0.5% increase in the core figure. The PPI has exceeded estimates for five months.

Producer prices have been accelerating for much of this year against a backdrop of robust demand, supply chain constraints and shortages of materials. The increases in input costs, combined with recent upward pressure on wages, help explain higher consumer inflation.

A report Wednesday showed the consumer price index climbed in July at a more moderate pace, though not enough to provide major relief from the cost increases weighing on sentiment and driving policy debate.

Federal Reserve officials, including Chair Jerome Powell, say recent price increases represent temporary shocks that are associated with the reopening of the economy. Some policy makers and investors, however, worry that cost pressures will lead to more persistent inflation.

As with the CPI data, the producer price report showed a shift in inflationary pressures from goods to services.

Services Inflation

Almost three-fourths of the jump in the July PPI reflected a record 1.1% pickup in services. The advance in final demand services was broad and included strength in margins at wholesalers and retailers.

Indexes tracking margins for airline passenger services, hospital care and accommodation also increased during the month.

The PPI report showed prices for goods increased 0.6% after a 1.2% advance in the prior month.

Prices of energy climbed by the most in four months, while food costs fell for the first time this year.

Producer prices excluding food, energy, and trade services -- a measure often preferred by economists because it strips out the most volatile components -- jumped 0.9% from the prior month, the most since January. Those costs were up 6.1% from July 2020.

Costs are advancing at a robust clip earlier in the production pipeline as well. Processed goods for intermediate demand rose 1.7% in July and were up 22.9% from a year earlier. The annual increase was the largest advance since 1975.

Nearly one-fifth of the monthly gain was attributed to a surge in prices of cold-rolled steel sheet and strip.

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