Wholesale price inflation unexpectedly accelerated in June to its highest rate since March 2023. That’s an unwelcome development for the US economy one day after the government announced that consumer prices declined on a monthly basis for the first time in four years.
The Producer Price Index, a measurement of average price changes seen by producers and manufacturers, was 2.6% for the 12 months ended in June, unexpectedly rising from the 2.4% annual rate seen in May, according to Bureau of Labor Statistics data released Friday.
On a monthly basis, prices rose 0.2% after holding flat in May.
The June increase was attributed to a sharp rise in final demand services, specifically trade services margins, which soared 1.9% from May. It’s the largest monthly increase for that category since March 2022.
“Strong PPI readings tend to support pricing power, which is clearly easing, and stronger profit margins,” Joe Brusuelas, chief economist for RSM US, told CNN via emails. “My sense is that with the economy and inflation cooling back towards more sustainable levels that margins are likely to remain strong but narrow.”
Economists had expected that prices would increase 0.1% on a monthly basis and hold steady at 2.2% annually.
When stripping out energy and food-related prices, core PPI jumped 0.4% for the month, rising 3% annually, its highest rate since April 2023.
PPI serves as a potential bellwether for retail-level inflation in the months ahead.
And for US consumers, inflation has been trending in a desired direction during the past couple of months. Despite a brief flare-up of price hikes in the first quarter of the year, which ultimately delayed the Federal Reserve’s plans for interest rate cuts, inflation has cooled considerably during the following three months.
On Thursday, the US economy got more good news in the latest Consumer Price Index, the most widely used inflation gauge that measures the average price changes for commonly purchased goods and services. Prices dropped on a monthly basis for the first time since May 2020, and annual inflation slowed to 3%, its slowest rate since June 2023.
“Friday’s stronger-than-expected PPI is an important reminder that inflation is still here and that the inflation data can be volatile,” Clark Bellin, president and chief investment officer of Bellwether Wealth, wrote in a note to clients Thursday. “While Friday’s strong PPI comes after Thursday’s weak CPI print, the Federal Reserve is data dependent and will be examining each inflation data point before deciding whether or not to cut interest rates.”
Despite the stronger-than-expected PPI number, Bellin said he believes rate cuts are still on the table for September.
This story is developing and will be updated.
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