Wholesale inflation rose by 0.1%

A key measure of wholesale inflation rose less than expected in July, further opening the door for the Federal Reserve to begin lowering interest rates.

The producer price index, which measures the selling prices producers receive for goods and services, rose 0.1% on the month, the Labor Department’s Bureau of Labor Statistics reported Tuesday. Excluding the volatile food and energy components, the core PPI was unchanged.

Economists surveyed by Dow Jones had expected a 0.2% rise in both all-article and core readings.

Another core measure that also excludes commercial services showed a rise of 0.3%.

On a year-over-year basis, the headline PPI rose 2.2%, down sharply from the 2.7% rise in June.

Stock market futures rose on the news, while Treasury yields fell.

The wholesale inflation reading was relatively subdued despite a 0.6% jump in final goods prices, the largest upward move since February and due mainly to a 1.9% increase in energy, including a 2.8% rise in gasoline.

According to the BLS, a 0.2% decline in services, the largest since March 2023, offset the move. Prices for business services fell 1.3%, while margins on wholesale sales of machinery and vehicles fell 4.1%. A 2.3% increase in portfolio management offset some of the decline in services prices.

The CPI is considered a leading indicator of inflation, as it measures product price inflation from the perspective of manufacturers and suppliers of goods and services. Its counterpart, to be released on Wednesday, is the consumer price index, which measures the real prices consumers pay in the marketplace. Economists also expect monthly increases of 0.2% for both the headline and core CPI.

Both measures are closely watched for signs of inflation. Although the Fed focuses more on the Commerce Department’s personal consumption expenditures price index, both the CPI and PPI are included in that calculation.

The latest inflation data comes at a time when markets have already fully priced in an interest rate cut at the Federal Reserve’s open market committee meeting in September. The main question now is whether the central bank will cut rates by a quarter or half a percentage point. The futures market currently sees this as a tie.

Federal Reserve officials have vowed to keep fighting inflation until they reach their 2% target, and recent data has been largely cooperative.

A New York Federal Reserve survey released Monday showed consumers’ view of inflation three years from now fell to 2.3%, the lowest level in the survey’s 11-year history.

Moreover, the survey also showed that consumers, particularly those at the lower end of the income scale, are beginning to suffer more from inflation. For example, the perceived likelihood of not making a minimum payment on a debt in the next three months rose to 13.3%, the highest level since April 2020, with most of the 1 percentage point monthly increase coming from households with annual incomes below $50,000.

Expectations of access to credit also declined and household spending expectations over the coming year fell to their lowest level since April 2021.