The Producer Price Index rose 0.2% in July on a monthly basis compared to 0.1% the month prior, with no rise in the flat annual reading of 1.7%. The monthly reading is in line with market expectations.
- Wholesale inflation appears to have ground to a halt, with little sign of an acceleration on the horizon.
- Core-PPI, which excludes the volatile components of food, energy, and trade margin costs, fell -0.1%, the first decrease in almost four years.
The wholesale cost of goods and services rose modestly in July, although from a broader perspective, inflation has lost all momentum. The cost of core wholesale prices dropped from 2.1% to 1.7%, the lowest level since late 2016. Wholesale goods prices rose 0.4% in July with increased costs in gasoline which is typically price-volatile. Energy prices are still 4.4% lower than in July 2018.
Wholesale food prices rose 0.2%, and wholesale services dipped -0.1%, the first decrease in the last six months. The dip was largely driven by a major drop in the cost of renting guest rooms. The cost of partly-finished goods has fallen 2% over the last year, and raw materials costs are down 10%, giving no indication of an uptick in wholesale inflation pressure in the near future.
Lower oil prices have played a role in the weak inflation pressure. The Federal Reserve voted to implement the first interest rate cuts in a decade last month, with another rate cut likely in the cards for the end of this month as well. Only last year, the Fed was raising rates to prevent inflation from getting out of hand, but now rate cuts are deemed necessary to hedge against recession as the trade war between the US and China continues to escalate.
First Cut: Final Demand PPI nudges up on energy costs in July. Underlying pace of upward pressures on producer prices is modest and mainly due to trade services. https://t.co/8qPUx6gy33 pic.twitter.com/yjRX2WVj1Q
— Whetstone Analysis LLC (@AnalysisLlc) August 9, 2019
Gold prices have returned near daily lows following the news of tame inflation pressure. Spot gold last traded at $1,498.46/oz, up 0.05% with a high of $1,509.08/oz and a low of $1,497.11/oz. Gold is still up on the day as risk aversion returns following a sell-off in the stock market yesterday.