US Producer Prices Flat in July, Cooling Inflation Bets on Fed Rate Hike
US producer prices were unchanged in July, while weekly jobless claims rose, further reducing market odds of a September Fed rate hike.
US producer prices were unchanged in July, as a decline in goods costs offset a marginal rise in services prices. The flat reading follows a revised 0.1% drop in June and came in below economist expectations of a 0.2% rebound.
On an annual basis, the Producer Price Index (PPI) rose 4.7% in July, slowing from a 5.5% gain in June. The data, released by the Labor Department, follows Wednesday's report of mild consumer inflation and suggests that price pressures are easing across the economy.
Goods prices fell 0.7% in July, driven by a 3.1% drop in energy costs and a 0.9% decline in food prices. Wholesale gasoline prices fell 5.7%, while fresh vegetable prices tumbled 34.9%. Notably, lettuce prices plunged a record 73.0% amid a cyclosporiasis outbreak, offsetting a 37.0% surge in egg prices.
Excluding food and energy, goods prices rose 0.1%, supported by gains in tires, iron and steel scrap, and transformers. Services costs increased 0.2%, lifted by a 6.5% jump in portfolio management fees, though airline fares fell 3.4%.
The report has further reduced expectations that the Federal Reserve will raise interest rates at its September meeting. Financial markets now price in a roughly 67.6% chance that the Fed will hold its benchmark rate steady at 3.50%-3.75%, according to CME's FedWatch Tool. The odds of a hike fell to 32.4% from 40.6% a day earlier.
"It's now looking far less likely that the FOMC will feel the need to hike as soon as September," said Stephen Brown, chief North America economist at Capital Economics.
Separately, initial claims for state unemployment benefits rose 9,000 to a seasonally adjusted 209,000 for the week ended August 8. Continuing claims, a proxy for hiring, fell 22,000 to 1.777 million.
"The data are consistent with the stable unemployment rate, a 'low churn' labor market with limited hiring and firing and slow labor force growth," said Andrew Hollenhorst, chief U.S. economist at Citigroup.
Some economists caution that a rate hike later this year remains possible, especially if August inflation data comes in hot. The Fed will receive August CPI and employment reports before its September 15-16 policy meeting.