Producer Price Inflation Declines in July

Producer prices were sharply declined in July, in contrast to last week’s consumer inflation report, which indicated prices were flat in the month.

Total PPI fell 0.9% in the month, triple what the market was expecting, as food prices fell 1.5% in the month and the energy index sunk 2.4%. In June, food prices had advanced 1.1% while energy prices surged 6.6%.

No one is calling it a deflationary spiral as the fluctuations are confined to energy and food, which have pushed producer prices down 6.4% since last year.

Core PPI, which strips out those volatile components, slipped 0.1% in July, mirroring the consensus call that it would increase by the same amount. That’s good news, as core prices have advanced 2.6% over the past 12 months.

TD strategist Charmaine Buskas called the data “impressive in their softness.”

“It is clear that on a trend basis, producer price inflation remains quite lacklustre reflecting weakened demand,” she said. “This is consistent with the degree of slack that remains in the U.S. economy. Looking ahead to August, there is a good chance that the softness will continue given the moderation in oil prices.”

As for central bank policy, Deutsche Bank’s Joseph LaVorgna said the report bolsters the view “that inflation will remain tame for at least the medium term, thereby giving the Fed room to keep rates low for some time.”

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