[News] U.S. July PPI Rose less than Expected though Service Costs First Saw Decline

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The U.S. Bureau of Labor Statistics released the Producer Price Index (PPI) on August 13th, showing a year-over-year increase of 2.2% for July, lower than the previous month’s 2.7% and below market expectations of 2.3%. The month-over-month increase was 0.1%, also below the prior month and market expectations of 0.2%.

Breaking it down by components, the final demand for goods rose by 0.6% month-over-month, with food and energy prices up by 0.6% and 1.9%, respectively. However, final demand services decreased by 0.2% month-over-month, with trade services—which reflect the margins of wholesalers and retailers—declining by 1.3%, offsetting the gains in food and energy. Excluding food, energy, and trade, the core PPI saw a year-over-year increase of 3.3%, up by 0.1% from the previous month, while the month-over-month increase was 0.3%, up by 0.2% compared to the previous month.

Overall, inflationary pressures in the U.S. continue to ease, with service costs experiencing their decline for the first time this year. For the Federal Reserve, this development allows for a greater focus on the labor market, providing additional flexibility and leverage in determining the extent of future rate cuts. While the market has largely priced in a rate cut at the September FOMC meeting, there remains significant debate over whether the cut will be 25 or 50 basis points, with the final decision likely hinging on upcoming CPI and employment data.