Inflation at the producer level firmed in July as higher food prices caused a rebound at the headline level. The overall PPI increased 0.2 percent in July, following a 0.5 percent fall in June. The July boost matched analysts' forecast. At the core level, the PPI gained 0.3 percent, following a 0.1 percent uptick in June. The market median expectation called for a 0.1 percent rise.
For the latest month, energy posted a 0.9 percent decrease while food prices jumped 0.7 percent. Bumping the core rate up were light trucks, up 1.5 percent; autos, up 0.3 percent, and pharmaceuticals, up 0.7 percent.
The surge in food prices was fresh and dried vegetables, up 9.8 percent; fresh fruits, up 3.8 percent; and fresh eggs, up 19.4 percent. Within energy, home heating oil dropped 3.5 percent while gasoline declined 2.2 percent. Residential gas and electricity rose 3.1 percent and 1.2 percent, respectively.
For the overall PPI, the year-on-year rate increased to 4.1 percent from 2.7 percent in June (seasonally adjusted). The core rate rose to 1.5 percent from 1.0 percent the prior month. On a not seasonally adjusted basis for July, the year-ago the headline PPI was up 4.2 percent while the core was up 1.5 percent.
Manufacturers managed to get through isolated price increases to retailers but based on the CPI, costs generally are not being passed on to the consumer. That could change for food in coming months as margins are slim for retailers.
Market Consensus before announcement
The producer price index fell 0.5 percent in June, following a 0.3 percent drop in May. Lower food costs were the main reason for the June dip but a decline in energy costs also helped. At the core level, the PPI eased to 0.1 percent from a 0.2 percent boost in May. Looking ahead, the headline number for July will likely rebound on higher energy costs. We have already seen energy or petroleum prices jump in July's CPI and in import prices.