U.S. wholesale inflation slows to a crawl, PPI shows

Wholesale costs often foretell future inflation trends. The increase in wholesale prices over the past 12 months slowed to 0.1% from 1.1% in the prior month. That’s the lowest reading since September 2020.

A separate measure of wholesale prices that strips out volatile food and energy costs and trade margins also increased 0.1% last month, the government said.

The increase in these so-called core prices over the past year decelerated to 2.6% from 2.8%, marking the smallest gain since March 2021.

The soft readings this week in consumer and wholesale inflation probably won’t stop the Federal Reserve from raising interest rates again in two weeks. The Fed is trying to make sure it snuffs out inflation and brings down prices even faster.

Read: U.S. inflation slows again, CPI shows, as Fed weighs another rate hike

The PPI report captures what companies pay for supplies such as fuel, packaging and so forth. These costs are often passed on to customers at the retail level and give an idea of whether inflation is rising or falling.

Key details: The cost of goods were unchanged in June, aided by lower food prices. Food prices have fallen in six of the past seven months and they are down 12% in the past year.

The sharp decline in wholesale food prices hasn’t fully translated into lower grocery bills for households, however. Groceries cost 4.7% more than they did a year earlier.

The wholesale cost of services, meanwhile, rose slightly last month and remains the chief source of U.S. inflation. Service-price increases have slowed to an annual rate of just 2.3%, however.

Inflation further down the pipeline continued to point to softening inflation.

The wholesale cost of partly finished goods declined for the fifth month in a row and are down 9% compared to a year earlier. And the cost of raw materials dropped again and are one-third cheaper vs. the same month one year ago.

Big picture: Wholesale prices have slowed even faster this year than consumer prices, perhaps a sign that inflation will retreat faster than the Fed expected.

Yet it’s going to take several more months of weak inflation readings, at the very least, to persuade the central bank its job is largely done. The Fed manages inflation by raising interest rates and slowing the economy.

The chief risk? A recession. The higher rates go, the more likely that higher borrowing costs would trigger a recession.

Looking ahead: “Well-contained producer price growth is a solid leading indicator of likely outcomes headed consumers’ way,” said senior economist Kurt Rankin of PNC Financial Services.

“It’ll be one and done for the Fed with the final rate hike in its historical tightening cycle coming at the July FOMC meeting,” said chief economist Gregory Daco of EY Parthenon.

Market reaction: The Dow Jones Industrial Average
DJIA,
+0.33%
and S&P 500
SPX,
-0.10%
rose in Thursday trades. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.832%
slipped to 3.82%.