Under the Hood of PPI, Inflation Pressures Building

Wells Fargo Research Team Wells Fargo

Final prices at U.S. producers were unchanged in July, but our preferred measure of core PPI rose a bit more than expected. Price changes for intermediate goods suggest the pickup in core inflation should remain modest.

A Misleading Headline Print

Producer price inflation stalled in July, but the details show the underlying trend remains upward. The headline was held down by a 0.5 percent drop in energy prices. With oil prices expected to ease further in the coming months, topline PPI should ease from its current 3.3 percent pace.
Trade services, which are measured by changes to margins, was the biggest drag on the headline in July, falling 0.8 percent.

“Core-Core” Heads Higher

Ex-food, energy and trade services, the PPI advanced 0.3 percent, kicking the 12-month change in the “core-core” up t0 2.8 percent.
Rising input costs have become more ubiquitous in business surveys amid tighter capacity and tariffs. Intermediate prices for processed goods were flat last month, however, and input costs for services are growing more slowly than earlier this year. Therefore, the upward trend in core inflation should remain gradual.

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Wells Fargo Research Team

Wells Fargo

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