US producer prices up slightly, point to moderate inflation

US producer prices up slightly, point to moderate inflation

FILE PHOTO: Price tags are pictured at a Ralphs grocery store in Pasadena
FILE PHOTO: Price tags are pictured at a Ralphs grocery store in Pasadena, California U.S., December 1, 2016. REUTERS/Mario Anzuoni/File Photo

WASHINGTON: U.S. producer prices rose slightly in June as the cost of energy and other goods dropped for a second straight month, resulting in the smallest annual increase in producer inflation in nearly 2.5 years.

The report from the Labor Department on Friday also showed a slowdown in underlying producer prices last month, a sign that overall inflation could continue to rise moderately despite strong gains in prices of some consumer goods and services in June.

Low inflation and growing risks to the economy from a 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 US central bank would "act as appropriate" to protect the economy against these risks.

The producer price index for final demand edged up 0.1 per cent last month after a similar gain in May. In the 12 months through June, the PPI rose 1.7 per cent, the smallest gain since January 2017, slowing further from a 1.8 per cent increase in May.

Economists polled by Reuters had forecast the PPI unchanged in June and increasing 1.6 per cent on a year-on-year basis.

Excluding the volatile food, energy and trade services components, producer prices were unchanged in June after rising 0.4 per cent for two straight months. The so-called core PPI increased 2.1 per cent in the 12 months through June after advancing 2.3 per cent in May.

The dollar was little changed against a basket of currencies, while US Treasury prices rose. US stock index futures were trading higher.

The Fed, which has a 2 per cent inflation target, tracks the core personal consumption expenditures (PCE) price index for monetary policy. The core PCE price index increased 1.6 per cent year-on-year in May and has undershot its target this year.

In June, wholesale energy prices fell 3.1 per cent after slipping 1.0 per cent in the prior month. Goods prices decreased 0.4 per cent last month after declining 0.2 per cent in May. A 5.0 per cent drop in gasoline prices accounted for nearly 60 per cent of the decline in the cost of goods last month.

Wholesale food prices rebounded 0.6 per cent in June, driven by chicken eggs and fresh fruits and melons. Corn prices surged 19.9 per cent, the largest rise since July 2015.

Excluding food and energy, goods prices were unchanged for three straight months.

The cost of services increased 0.4 per cent in June, the most since October 2018, after rising 0.3 per cent in May. Services were boosted by an increase in margins received by wholesalers and retailers.

Portfolio management prices dropped 1.8 per cent last month.

The cost of healthcare services rose 0.2 per cent last month, matching May's gain. Prices for doctor visits and dental care were unchanged last month. However, the cost of hospital care increased a solid 0.4 per cent in June. Those healthcare costs feed into the core PCE price index.

Source: Reuters