The US Producer Price Index Shows Positive Signs

The Bureau of Labor Statistics reported on Thursday that the producer price index (PPI) remained stable in July, in contrast to a 0.3% drop observed the previous month.

Economists initially predicted a 0.2% increase in this broad measure of prices that businesses pay. Year-over-year, producer prices have gone up by 4.7%. This was slightly below the expected 4.9% rise, following a 5.5% increase recorded in June.

Notably, energy prices fell 3.1% from June, marking their second straight month of decline. Additionally, food prices decreased by 0.9%, which is the largest drop seen in the past year.

The index excluding food and energy recorded a 0.2% rise in July, and a 4.2% increase from the same time last year, slightly below the forecast of a 0.3% rise.

Commodity prices saw a decline of 0.7%, primarily due to lower fuel costs, although they still showed a year-over-year increase of 6.5%. When excluding food and energy, they rose by 0.1%.

Service prices increased by 0.2%, up 3.9% from the previous year, propelled by a significant 6.5% rise in portfolio management services, which typically rise as the value of financial assets increases.

On the other hand, the price index for transportation and warehousing dropped by 1.8%. Trade services, reflecting the difference between purchasing costs for wholesalers and retailers versus selling prices, saw a minor decrease of 0.1%.

The Producer Price Index gauges the prices that businesses in the U.S. receive for goods and services. It encompasses sales to consumers, households, businesses, and foreign buyers, offering a wider snapshot than the Consumer Price Index. Though sometimes referred to as a “wholesale” price index, it does not strictly measure wholesale prices. The headline figures from the final demand index are based on product sales to end-users, not on components contributing to the production of additional goods or services. Import prices are excluded from this measure, while export prices are included, even though they are excluded from the CPI.

The PPI report also looks at the sales of goods and services for intermediate demand, which are the items that businesses require to produce their final products. The index for processed goods for intermediate demand fell by 0.6% in July, following a 1.1% dip in June, with declines primarily in the energy and food sectors. However, when excluding these categories, processed goods for intermediate demand rose by 0.1%. Additionally, intermediate services experienced a 0.5% rise, driven by that same 6.5% growth in portfolio management.