U.S. PPI Rises 2.3% Yearly, Slowest Since September 2024

The Producer Price Index (PPI) for final demand in the U.S. rose by 2.3% on a yearly basis in June, marking a significant slowdown from the previous month's 2.7% increase. This figure fell short of expectations, which had anticipated a 2.5% rise. The monthly PPI remained unchanged, contrary to expectations of a 0.2% increase. This stagnation was primarily driven by a decline in services costs, which offset a 0.3% rise in goods prices. The core PPI, which excludes food, energy, and trade services, also held steady, increasing by 2.5% year-over-year, the smallest annual advance since late 2023.

The unexpected drop in the PPI index suggests a cooling in inflationary pressures, which could influence the Federal Reserve's monetary policy decisions. With inflation fears easing, there is a growing expectation that the Fed may maintain a dovish stance, focusing on supporting economic growth rather than aggressively tightening monetary policy. The flattening of the core PPI further supports this narrative, as it indicates that underlying inflationary trends are also stabilizing.

The decline in the annual PPI inflation rate to 2.3% is the lowest since September 2024, highlighting a broader trend of moderating price increases. This development is likely to be welcomed by policymakers and economists, as it reduces the risk of overheating in the economy. However, it also poses challenges for businesses, as they navigate a more uncertain pricing environment. The stagnation in the monthly PPI, coupled with the decline in services costs, suggests that the economy may be experiencing a period of transition, with some sectors adjusting to new market conditions.

The softening of the PPI index is a critical indicator for the broader economy, as it reflects the costs faced by producers and can have a ripple effect on consumer prices. The unchanged monthly PPI and the decline in the annual rate to 2.3% indicate that inflationary pressures are easing, which could provide some relief to consumers and businesses alike. However, it is essential to monitor these trends closely, as they can have significant implications for economic policy and market dynamics.

Final demand goods rose 0.3%, mainly thanks to communication equipment, which are most sensitive to trade restrictions and tariffs, surging 0.8%. But that gain got canceled out by a 0.1% drop in services, and services make up a big chunk of the U.S. economy. At the same time, May’s original PPI print got a facelift. The BLS revised it upward, from 0.1% to 0.3%. That might sound small, but it’s actually the biggest jump in wholesale goods prices since February. Within the core goods section again, this means excluding food and energy, there was another 0.3% increase. So even if the headline number didn’t move in June, certain parts of the economy clearly did.

On a 12-month basis, the headline PPI came in at 2.3%, down from 2.7% in May. That’s still above the Federal Reserve’s 2% target, but it’s easing. Compare that with the CPI data from Tuesday, where consumer prices rose 0.3% month-over-month, and the annual headline inflation rate landed at 2.7%. Core CPI, which cuts out the noise from food and energy, hit 2.9% year-over-year—its highest level since February.

Energy prices saw a 0.6% jump in June, and food went up too, but just by 0.2%. One category that really stood out was chicken eggs, which down by 21.8% in a single month.