WASHINGTON — The rise in U.S. wholesale prices eased in July, suggesting that inflationary pressures are continuing to ease as the Federal Reserve moves closer to a rate cut that is expected to begin next month.
The Labor Department reported Tuesday that its producer price index – which tracks inflation before it reaches consumers – rose 0.1 percent from June to July, down from a 0.2 percent increase the previous month. And year-over-year, prices rose 2.2 percent in July. That was the smallest increase since March and below June’s 2.7 percent year-over-year increase.
July’s wholesale figures reflect a broad and steady slowdown in price increases, which hit a four-decade high in mid-2022 but are now approaching the Fed’s 2 percent inflation target. On Wednesday, the Labor Department will release the best-known inflation measure, the Consumer Price Index.
Tuesday’s report showed that prices in the country’s huge services sector fell 0.2 percent last month, the biggest drop since March 2023. Goods prices rose 0.6 percent, mainly because gasoline prices rose 2.8 percent from June to July.
Excluding food and energy prices, which fluctuate widely from month to month, so-called core wholesale prices remained unchanged from June and rose 2.4 percent from July 2023. The increases were smaller than forecasters had expected.
The producer price index can be an early sign of where consumer price inflation is headed. Economists also watch it because some of its components, particularly health care and financial services, feed into the Fed’s preferred inflation indicator – the personal consumption expenditures (PCE) index.
Paul Ashworth, chief North American economist at Capital Economics, said the prices included in the PCE were “very encouraging” overall, pointing in particular to slight increases in wholesale prices for doctors’ offices and hospitals. As a result, Ashworth revised down his forecast for core PCE inflation in July from 1.8 percent to 1.4 percent.
Forecasters expect the Consumer Price Index (CPI) released on Wednesday to show that consumer prices rose 0.2 percent from June to July, after falling 0.1 percent the previous month, and will rise 3 percent from July 2023, according to a survey by data firm FactSet.
As Americans prepare for the presidential election in November, many remain unhappy with consumer prices that are nearly 19 percent higher than they were before inflation began in the spring of 2021. Many are blaming President Biden, although it is unclear whether they will hold Vice President Kamala Harris, who is running for president, accountable.
In the fight against high inflation, the Fed raised its key interest rate eleven times in 2022 and 2023, reaching a 23-year high. From 9.1 percent in June 2022, consumer price inflation has fallen to 3 percent year-on-year.
The US jobs report for July, which was much weaker than expected, reinforced widespread expectations that Fed policymakers will begin cutting interest rates to support the economy when they meet in mid-September. The jobs report showed that the unemployment rate rose for the fourth month in a row to 4.3 percent, which, while still healthy by historical standards, is the highest level since October 2021.
A series of Fed rate cuts should, over time, lead to lower borrowing costs across the economy – for mortgages, auto loans, credit cards, and business loans. They could also drive up stock prices.
