US wholesale inflation slowed as expected in July, easing after an unexpected flare-up the month before. That sets the stage for an even more crucial reading on price hikes due out Wednesday.
The Producer Price Index, a measurement of average price changes seen by producers and manufacturers, was 2.2% for the 12 months ended in July, a stark pullback from the 2.7% increase registered in June, according to Bureau of Labor Statistics data released Tuesday.
On a monthly basis, prices rose 0.1%, a slower pace than the 0.2% increase seen in June.
Economists had expected that prices would increase 0.2% on a monthly basis and slow to 2.3% annually, according to FactSet estimates.
PPI serves as a potential bellwether for retail-level inflation in the months ahead. On Wednesday, the BLS will release the Consumer Price Index for July, providing a critical look at how prices are changing for consumers in their everyday lives.
The modest monthly increase in the overall PPI was attributed to a 0.6% jump in goods prices, according to the BLS report. Services prices fell 0.2%, a decrease driven mostly by a correction in the volatile trade services category (a measurement of margins), which fell 1.3% after leaping 1.4% in June and creating a deceptively strong overall PPI reading that month.
When stripping out energy and food prices — categories that also tend to be volatile — core PPI prices were flat for the month, bringing down the annual gain to 2.4%, its lowest since March.
The PPI, although closely watched because it shows how inflation is trending upstream of the consumer, typically plays second fiddle to CPI and lands a day after its retail-level counterpart.
This month, however, PPI is serving as the opening act — and all eyes are on the headliner.
Economists expect CPI to show that inflation continues to wane, although the progress will appear much more gradual than Tuesday’s data.
The forecasts are for CPI to rise 0.2% from June, pushed higher by rising gas prices, and hold steady at 3% annually, according to FactSet estimates. Core CPI is expected to rise 0.2% as well but slow on an annual basis to 3.2%.
This week’s inflation data, especially Wednesday’s CPI, is expected to be closely scrutinized as it’s coming on the heels of an unexpectedly weak jobs report that sent markets into a tailspin last week.
