U.S. wholesale prices fall in June as energy costs ease inflation pressure

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Wholesale prices fall June

Highlights

U.S. producer price index for final demand falls 0.3% in June, versus expectations for no change, as energy prices decline 6.4%.
Core PPI rises 0.2% in June and 5.1% year over year; goods prices drop 1.4%, gasoline plunges 12%, while services climb 0.2%.
Weaker producer and consumer inflation data reduce pressure for further Fed rate hikes, but markets still expect an increase, possibly by September.

June producer price data and energy-driven decline

As reported by CNBC, citing the Bureau of Labor Statistics, the producer price index for final demand falls 0.3% in June on a seasonally adjusted basis, compared with expectations for no change. On an annual basis, wholesale inflation stands at 5.5%, while the May reading is revised down sharply to a 0.6% increase from the initially reported 1.1%.

Core PPI, which excludes food and energy, rises 0.2% in June, below the 0.3% increase expected by economists. Core PPI excluding trade services rises 0.1% on the month and is up 5.1% from a year earlier.

Goods prices fall 1.4% in the month, the steepest decline since July 2022, led by a 6.4% drop in energy prices and a 0.6% fall in final demand food prices. Within goods, gasoline tumbles 12%, accounting for about two-thirds of the monthly decrease, while services prices increase 0.2%, supported by a 0.4% gain in trade services.

Fed outlook and broader inflation impact

The June producer data arrives a day after the BLS reports that the consumer price index falls 0.4% in the month, bringing annual consumer inflation down to 3.5%. Core consumer inflation declines to 2.6% after prices are unchanged on the month, marking further progress in the central bank's effort to bring inflation back toward target.

Chris Rupkey, chief economist at Fwdbonds, says the Fed's fight against inflation is not over, but adds that easing factory-level price pressures reduce the chances of further rate hikes and suggest producers may pass fewer costs on to consumers. The producer and consumer price measures both feed into the personal consumption expenditures price index, the Federal Reserve's preferred gauge, which the Commerce Department is due to release later this month.

For May, the PCE index shows headline inflation at 4.1% and core inflation at 3.4%, and those readings are likely to ease after this week's data. Even so, markets still expect the Fed to approve an interest rate hike this year, possibly as soon as September, while Fed Chairman Kevin Warsh tells House lawmakers that June's price decline does not amount to a "mission accomplished" moment on inflation.

In our earlier coverage of the June U.S. CPI slowdown, we explained how cooler consumer inflation prompted markets to scale back expectations for an imminent Federal Reserve rate hike. We also noted that policymakers, including Fed Chairman Kevin Warsh, remained cautious and wanted several more supportive readings, with upcoming producer-price data expected to help shape the broader inflation and PCE outlook.

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