U.S. Producer Prices Increased More Than Forecast in June

(Bloomberg) -- A measure of underlying U.S. producer prices increased in June by more than forecast, driven by trade services and indicating inflation may be starting to stabilize.

Excluding food and energy, producer prices increased 2.3% in June from a year earlier, matching the prior month’s annual advance and more than the median forecast of 2.1%, a Labor Department report showed Friday. The overall producer-price index rose 0.1% for a second month, also exceeding expectations for no change.

Key Insights

• The data follow a report Thursday showing consumer prices also picked up, which may complicate Fed policy makers’ decision on interest-rate policy later this month. The stronger figures indicate companies are seeing at least some inflation that could filter through to the broader economy.
• Final demand services rose in June by the most since October 2018. Trade indexes measure changes in margins received by wholesalers and retailers. Retail margins for fuels surged by the most since November, while margins also picked up at wholesalers of machinery and at retailers of health and beauty products and apparel and footwear.
• Core consumer inflation topped expectations in separate data released Thursday, showing that the index which excludes food and energy rose the most since January 2018. There were gains across categories, from shelter to clothing and used vehicles.
• President Donald Trump has repeatedly called on central bank officials to cut interest rates to spur economic growth, citing muted inflation as one reason to cut. Bond traders widely expect officials to do so at their next meeting, while Fed leaders emphasize political independence.
• In Capitol Hill testimony this week, Fed Chairman Jerome Powell said the economy continues to face downside risks including trade tensions and sluggish inflation, strengthening the case for a reduction in interest rates.

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• Producer prices excluding food, energy, and trade services -- a measure preferred by economists because it strips out the most volatile components -- were unchanged from the prior month, and rose 2.1% from a year earlier after climbing 2.3%.
• The cost of goods fell 0.4% after falling 0.2% the previous month. Services prices increased 0.4% last month after a 0.3% gain in May.
• Energy prices slumped 3.1% from the prior month and food costs rose 0.6%, the most this year.

--With assistance from Chris Middleton.

To contact the reporter on this story: Katia Dmitrieva in Washington at edmitrieva1@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Vince Golle

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