June PPI Surges To 2.6%, Exceeding Expectations

U.S. PPI rose by 2.6% year-on-year in June, exceeding the estimated increase of 2.3%, and up from the previous month's 2.2%. The 2.6% increase is also the largest rise since a 2.7% rise in March 2023. Meanwhile, the U.S. PPI increased by 0.2% month-on-month in June, higher than the expected 0.1% increase, and reversing from a -0.2% in May.

The core PPI, which excludes food and energy, rose by 0.4% month-on-month in June, outpacing the market forecast of 0.2% growth.

In terms of goods, the price index for final-demand goods fell by 0.5% in June, primarily due to a 2.6% decrease in the final-demand energy index. Food prices fell by 0.3%, while the index for final demand goods excluding food and energy remained unchanged.

Additionally, the intermediate demand price for processed goods decreased by 0.2% in June, the unprocessed goods rose by 1.4%, and the intermediate demand price for services increased by 0.2%. In terms of production flow, the price for stage 4 intermediate demand edged up by 0.1%, stage 3 remained unchanged, stage 2 increased by 0.8%, and stage 1 also saw a slight rise of 0.1%.

In the PPI report, the BLS stated that a 0.6% increase in service costs was one of the main factors that pushed the overall index higher, as the underlying measure excluding food, energy, and trade services remained unchanged in June.

After the data release, the stock and bond markets reacted mildly to the PPI figures, showing a stronger-than-expected increase at the headline level but no change at the core level. Futures for the S&P 500 and the Nasdaq 100 were slightly lower, while the small-cap Russell 2000 index was steadily advancing towards a second consecutive day of gains.

Overall, the wholesale cost rise in June was slightly higher than expected, and the 12-month wholesale price increase inched up from 2.4% in the previous month to 2.6% in June. However, this is not considered sufficient to offset the overall trend of recent inflation slowing down.

Currently, analysts expect the Federal Reserve to announce a decision to start cutting interest rates in September at their end-of-July meeting.

For instance, San Francisco Federal Reserve Bank President Mary Daly said in a media interview on Thursday that she does think that with the incoming information on inflation, growth, and the labor market, some policy adjustments are likely to be warranted.