U.S Producer Price Indexes – July 2018

The Producer Price Index for final demand was unchanged in July, seasonally adjusted, the U.S.
Bureau of Labor Statistics reported today. Final demand prices advanced 0.3 percent in June and
0.5 percent in May. (See table A.) On an unadjusted basis, the final demand index increased 3.3
percent for the 12 months ended in July.

In July, a 0.1-percent rise in the index for final demand goods offset a 0.1-percent decline in
prices for final demand services.

The index for final demand less foods, energy, and trade services moved up 0.3 percent in July,
the same as in June. For the 12 months ended in July, prices for final demand less foods, energy,
and trade services climbed 2.8 percent.

Final Demand

Final demand goods: The index for final demand goods inched up 0.1 percent in July, the same as
in June. The July advance in prices for final demand goods can be traced to a 0.3-percent rise in the
index for final demand goods less foods and energy. In contrast, prices for final demand energy fell
0.5 percent, and the index for final demand foods decreased 0.1 percent.

Product detail: In July, a major factor in the increase in prices for final demand goods was the index
for pharmaceutical preparations, which rose 0.7 percent. Prices for eggs for fresh use, fresh fruits and
melons, motor vehicles, and liquefied petroleum gas also moved higher. Conversely, the electric
power index fell 1.6 percent. Prices for meats; hay, hayseeds, and oilseeds; and nonferrous scrap also
decreased. (See table 4.)

Final demand services: Prices for final demand services edged down 0.1 percent in July, the first
decline since falling 0.2 percent in December 2017. The July decrease is attributable to the index for
final demand trade services, which moved down 0.8 percent. (Trade indexes measure changes in
margins received by wholesalers and retailers.) In contrast, prices for final demand services less
trade, transportation, and warehousing and the index for final demand transportation and
warehousing services advanced 0.3 percent.

Product detail: Leading the July decline in prices for final demand services, margins for fuels and
lubricants retailing dropped 12.7 percent. The indexes for machinery and equipment parts and
supplies wholesaling, food retailing, hospital outpatient care, and airline passenger services also
moved lower. Conversely, prices for guestroom rental climbed 3.9 percent. The indexes for apparel,
jewelry, footwear, and accessories retailing; inpatient care; and truck transportation of freight also
increased.

U.S Bureau of Labor statistics

U.S Producer Prices Rise in January

U.S. producer prices accelerated in January, boosted by strong gains in the cost of gasoline and healthcare, offering more evidence that inflation pressures were building up.

The report came on the heels of data on Wednesday showing a broad increase in consumer prices in January. The Labor Department said on Thursday its producer price index for final demand rose 0.4 percent last month after being unchanged in December.

In the 12 months through January, the PPI rose 2.7 percent after advancing 2.6 percent in December. A key gauge of underlying producer price pressures that excludes food, energy and trade services jumped 0.4 percent last month. The so-called core PPI edged up 0.1 percent in December.

It rose 2.5 percent in the 12 months through January, the largest increase since August 2014. The core PPI increased 2.3 percent in the 12 months through December.

The PPI report bolsters expectations that inflation will gain steam this year even though its correlation with consumer prices has weakened.

Economists believe that a tightening labor market, weak dollar and fiscal stimulus in the form of a $1.5 trillion tax cut package and increased government spending will lift inflation toward the Federal Reserve’s 2 percent target this year.

The U.S. central bank’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, has undershot its target since May 2012.

U.S. financial markets were little moved by the data.

The Fed has forecast three interest rate increases this year, with the first hike expected in March. Most economists are, however, forecasting four rate increases this year because of rising inflation pressures.

FOOD PRICES FALL

Last month, the cost of hospital outpatient care surged 1.0 percent, the largest increase since August 2014, after gaining 0.1 percent in December.

Hospital inpatient care rose 0.3 percent. Overall, the cost of healthcare services shot up 0.7 percent in January. Those costs feed into the core PCE price index.

Wholesale goods prices increased 0.7 percent last month, after nudging up 0.1 percent in December. Gasoline prices, which rose 7.1 percent, accounted for nearly half of the increase in the cost of goods last month.

Wholesale food prices fell for a second straight month, with prices for prepared poultry posting their biggest drop in 14 years and chicken eggs declining by the most since December 2015. Core goods prices rose 0.2 percent for the second consecutive month.

Reuters