US Producer Price Inflation Proves to Be More Moderate Than Expected -

An important measure of US producer price inflation came in below expectations in June, suggesting that the effects of the Iran conflict were relatively contained.

The producer price index, which excludes food and energy, saw an annual increase of 4.7%, as reported by the Bureau of Labour Statistics on Wednesday. It rose by 0.2% compared to May.

The overall PPI registered slower growth, increasing 5.5% from the previous year.

This report suggests that a decline in energy prices played a significant role in keeping inflation pressures low last month. This may provide the Federal Reserve with more flexibility to postpone an interest rate hike—especially following another report on Tuesday indicating that consumer prices also remained stable in June. Nonetheless, with the resurgence of tensions in the Middle East, this reprieve could be short-lived.

US stock index futures rose, and Treasury yields fell as investors lowered their expectations for a Fed rate hike in July after the report.

Fed Chairman Kevin Warsh advised Congress on Tuesday to avoid premature celebrations following the positive consumer price data.

Energy prices fell by 6.4% in June compared to the previous month, based on Wednesday’s statistics, and there was a decrease in transportation and warehousing costs as well. However, trucking freight rates remain elevated due to increasing fuel costs and a shrinking driver workforce, partly a result of President Donald Trump’s immigration policies.

Food prices experienced their first drop in three months, having generally increased this year due to various factors such as adverse weather, the ongoing conflict, and tariffs.

Several components of the PPI are particularly pertinent to the Fed, as they impact its favored inflation measure, the personal consumption expenditures price index. These sectors showed some resilience, primarily due to increases in airfares and management fees.

Read More: US June Producer Price Components for PCE (Table)

The Bureau of Economic Analysis is scheduled to release the June PCE price data along with income and spending figures on July 30.

In a separate report on Wednesday, the Federal Reserve Bank of New York revealed that the general business conditions index for factory activity improved in July due to an increase in new orders and shipments, with an employment measure reaching its highest level since December 2022. A price gauge eased but remained elevated, and the outlook for future prices paid and received weakened.