According to Business-Today, US wholesale inflation cooled in July as the producer price index (PPI) — which tracks prices received by producers before they reach consumers — rose 4.7% from a year earlier, down from a 5.5% annual gain in June. The moderation, aided by lower fuel costs, signals reduced price pressure for businesses and is likely to factor into the Federal Reserve's deliberations before its September policy meeting.
Wholesale Prices Cool in July
Prices were flat month-on-month in July, following a 0.1% fall in June, Business-Today reported. Underlying pressures also softened: excluding food and energy, core wholesale inflation eased to 4.2% year-on-year from 4.7% in June, while monthly core prices rose 0.2%, slower than the 0.4% increase recorded between May and June.
| Indicator | July | June |
|---|---|---|
| PPI year-on-year | 4.7% | 5.5% |
| PPI month-on-month | 0.0% | -0.1% |
| Core PPI year-on-year | 4.2% | 4.7% |
| Core PPI month-on-month | 0.2% | 0.4% |
Fuel Costs and the Iran War Effect
The decline in inflation was aided by lower fuel costs earlier in July, when gas prices retreated after surging during the Iran war, according to the report. However, fuel prices moved higher again later in the month and into early August, creating uncertainty over whether inflation could accelerate in the next set of data.
"The soft (producer prices) reading for July points to reduced inflationary pressure for businesses in coming months," said Ben Ayers, senior economist at Nationwide. "While the renewed rise in fuel costs is concerning, input costs beyond energy are cooling."
Fed Policy and the PCE Read
The latest figures are likely to feature in discussions at the Federal Reserve ahead of its September policy meeting. Officials have so far left interest rates unchanged this year and are weighing whether inflation is easing enough to avoid further rate increases, Business-Today reported.
Economists closely track producer prices because some components, particularly healthcare and financial services, feed into the personal consumption expenditures (PCE) index, the Fed's preferred inflation measure. The PCE report is due in about two weeks. Based on the consumer and producer inflation reports released so far, economists expect core PCE inflation to remain at around 3.3% in July when data is published on August 26 — still above the Fed's 2% target even as other measures show some easing.
Labour Market and Consumer Pressures
A softer labour market is adding another factor to the Fed's deliberations. Government data released last week showed employers cut jobs in July, pointing to economic weakness that could reduce the case for higher borrowing costs.
For households, consumer prices are rising faster than wages for the fourth straight month, Business-Today reported. Higher costs for essentials, including rent and utilities, could weigh on spending if incomes fail to keep pace. The July moderation in producer prices came a day after government figures showed a modest cooling in consumer inflation as well, offering a mixed picture for policymakers and consumers.
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