US producer prices rose quite in June
U.S. producer prices rose slightly in June as the cost of energy and other goods fell for a second straight month, offsetting an acceleration in services, leading to the smallest annual increase in producer inflation in nearly 2-1/2 years.
The low inflation environment and rising risks to the economy from the trade war between the United States and China, and cooling global growth are likely to see the Federal Reserve cutting interest rates this month for the first time in a decade. Fed Chairman Jerome Powell on Wednesday told lawmakers the U.S. central bank would “act as appropriate” to protect the economy against these risks.
“We don’t anticipate any significant acceleration in inflation through the remainder of this year,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “Therefore, the Fed can cut rates in July and then keep them unchanged through 2020.”
The Fed, which has a 2% inflation target, tracks the core personal consumption expenditures (PCE) price index for monetary policy. The core PCE price index increased 1.6% year-on-year in May and has undershot its target this year.
In June, wholesale energy prices fell 3.1% after slipping 1.0% in the prior month. Goods prices decreased 0.4% last month after declining 0.2% in May. A 5.0% drop in gasoline prices accounted for nearly 60% of the decline in the cost of goods last month.
Wholesale food prices rebounded 0.6% in June. Core goods prices were unchanged for three straight months. The cost of services increased 0.4% in June, the most since October 2018, after rising 0.3% in May. Services were boosted by an increase in margins received by wholesalers and retailers.