CNN
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Wholesale price inflation unexpectedly rose in June to its highest rate since March 2023, according to new data released Friday.
On the surface, the PPI’s rise seems like an unwelcome development for the U.S. economy and its struggle to rein in high inflation — and it seems a particularly troubling drop a day after the Bureau of Labor Statistics reported that Consumer prices fell on a monthly basis. For the first time in four years.
However, economists caution that the monthly data — particularly the category that pushed the PPI higher in June — may be erratic, and that the unexpected jump in the PPI is unlikely to be a worrisome sign of any broader inflationary pressures building up in the future.
The June rise was attributed to a sharp rise in Final Order ServicesTrade services margins in particular rose, up 1.9% since May, offsetting lower energy prices and lower commodity prices.
It’s the largest monthly increase for trade services since March 2022.
“The increase was broad-based across wholesalers and retailers of fuel, motor vehicles and other goods, but it is certainly not the beginning of a strong return to margins,” Ian Shepherdson, chairman and chief economist at Pantheon Macroeconomics, wrote in a note to clients on Friday. “Data is volatile and often heavily revised. Margins will come under increasing pressure as consumer spending growth continues to slow.”
Economists had expected prices to rise 0.1% on a monthly basis and hold steady at 2.2% annually.
Looking beyond the volatility and into the “core” of the market
The PPI is often seen as a potential indicator of retail inflation in the coming months.
“The higher margins make people think about corporate greed and the higher costs that are passed on to consumers through middlemen who make profits along the way,” said Chris Rupkey, chief economist at FwdBonds.
“It doesn’t look good, but we don’t think consumers are bracing for another price hike just because margins are rising,” Rupkey wrote in an email response to a CNN Business inquiry. “These margins are notoriously difficult to measure, and wholesalers have their own costs to cover.”
Excluding energy and food prices, the core producer price index rose 0.4% during the month, up 3% year-on-year, its highest rate since April 2023.
However, to better eliminate the impact of volatile trade services, economists also look at the “core” reading, Andreas Hauskrecht, a clinical professor of trade economics at Indiana University’s Kelley School of Business, said in an interview.
“So the ‘core’ doesn’t include energy, doesn’t include food, doesn’t include trade, because we think that’s volatility and prices that are not directly related to monetary policy, and we’re trying to clean up the data so that we can see the real trend,” he said. “So I don’t want to stress too much about the trade index.”
In June, the producer price index excluding energy, food and trade remained flat during the month, and on an annual basis slowed to 3.1% from 3.3% in May, according to data from the Bureau of Labor Statistics.
For American consumers, inflation has been trending in the right direction over the past two months. Despite a brief spike in prices in the first quarter that ultimately delayed the Federal Reserve’s plans to cut interest rates, inflation has slowed sharply over the past three months.
On Thursday, the US economy got a More good news In the latest Consumer Price Index, the most widely used measure of inflation that measures average changes in the prices of commonly purchased goods and services, prices fell on a monthly basis for the first time since May 2020, and annual inflation slowed to 3%, its slowest rate since June 2023.
The June producer price index does not reflect a shift in the path of slowing inflation, Rupkey said.
We believe that the essence [Personal Consumption Expenditures] “Inflation in June is likely to be unchanged or the same modest 0.1% increase as in May,” he said, referring to the closely watched inflation gauge. “Inflation still appears to be dying on the vine largely because commodity and goods price increases have been moderate,” he added.
Federal Reserve Rules Its goal is 2% On the core PCE index, the ECB increasingly scrutinizes the core PCE index for underlying inflationary trends.
The producer price index data showed that energy-intensive transportation and storage saw prices fall in the early and final stages of purchases. This suggests that supply pressures are easing, Kurt Rankin, senior economist at PNC Financial Services, wrote on Thursday.
“The pace of decline in the energy PPI, which lies at the root of all price pressures in the U.S. economy, means that the second half of 2024 will see lower cost pressures from producers’ energy bills, as well as the cost of shipping goods to retailers,” Rankin wrote.