US wholesale inflation slowed more than expected in July
By Alicia Wallace, CNN
(CNN) — Businesses’ costs aren’t rising as fast as they have been in recent months, an indication that price hikes could slow for consumers in the months ahead.
The Producer Price Index, which tracks prices changes for producers and manufacturers, increased 4.7% in the 12 months that ended in July. That was a slowdown from 5.5% in June, according to Bureau of Labor Statistics data released Thursday.
On a monthly basis, prices were unchanged after falling 0.1% in June. Both measures were better than economists expected.
The PPI, a closely watched measure of wholesale inflation, serves as a potential bellwether for what consumers could experience in the near future; however, the higher prices businesses pay each other aren’t always fully passed on through the supply chain.
Wholesale inflation is cooling off after the war in Iran caused a spike in oil and gas prices and other commodities. Producer-level inflation climbed to a four-year high of 5.9% in May before falling energy prices cooled things off a bit in June and July.
Wholesale food prices also declined for the second month in a row.
But since oil and gas prices can vary widely on a monthly basis and are subject to more on-time shocks – especially in the wake of a war – economists closely watch “core” inflation gauges that remove volatile components. Core PPI, which excludes food and energy prices, rose 0.2% in July and slowed to 4.2%, the lowest rate in four months.
On Wednesday, the July Consumer Price Index showed that inflation of commonly purchased goods and services cooled for the second month in a row to an annual rate of 3.4%.
Prices are still rising much faster than they typically do, however. That’s been the case for more than five years now, and that’s had a compounding, negative effect on household finances and affordability.
The latest PPI report may portend slower inflation to end the summer, but fuel prices remain a wild card because of the ongoing Iran conflict, noted Ben Ayers, senior economist for Nationwide
And while Thursday’s report paints a picture of a broader easing of wholesale inflation, it also highlights some more localized pressures resulting from the massive AI build-out and investment.
The trillions of dollars being poured into AI-related components means storage and memory suppliers are prioritizing making the high-performance memory chips commanded by data centers. That’s diverted some of the production away from consumer products and raised costs for manufacturers.
Semiconductor and other electronic component manufacturing prices, for example, are up 27.1% annually from a year ago, easing from the 27.7% annual rate notched in June.
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