Wholesale prices in the United States showed a slight increase in July, indicating a decrease in inflationary pressures compared to alarming levels seen in 2022. According to the Labor Department’s report on Friday, the producer price index, which measures inflation before it affects consumers, rose by 0.8% last month compared to July 2022. This follows a year-over-year increase of 0.2% in June, which was the smallest rise since August 2020. In terms of month-to-month changes, wholesale prices rose 0.3% from June to July, showing an improvement from no change between May and June. The increase in wholesale inflation was driven by a rise in service prices, particularly for investment portfolio management, as well as a sharp increase in wholesale meat prices. Despite the increase, analysts believe that the overall trend for inflation continues to ease. The figures released by the Labor Department reflect the prices charged by manufacturers, farmers, and wholesalers, and can serve as an early indicator of consumer inflation in the coming months.
Wholesale inflation reached its peak at 11.7% in March 2022 but has since been steadily declining due to the Federal Reserve’s 11 interest rate hikes. Excluding volatile food and energy prices, “core” wholesale inflation rose by 2.4% from July 2022, the same year-over-year increase as reported in June. In terms of month-to-month changes, core producer prices increased by 0.3% from June to July, after a 0.1% decrease from May to June. On the other hand, consumer prices rose by 3.3% in July compared to the previous year, slightly higher than the 3% increase seen in June. However, core consumer inflation only increased by 0.2% from June, matching the smallest month-to-month increase in nearly two years. While inflation has cooled over the past year and is closer to the Federal Reserve’s target level of 2%, it remains persistently above the target. Many economists and market analysts speculate that the Fed’s most recent rate hike in July could be the last.
The slower pace of price increases, combined with a strong job market, has raised hopes that the Federal Reserve may achieve a “soft landing” by raising rates enough to curb borrowing and tame inflation without causing a severe recession. The Fed will carefully review several economic reports before its upcoming meeting in September to decide whether to continue raising rates. These reports include another monthly update on consumer prices, the latest reading of the Fed’s preferred inflation gauge, and the August jobs report. Inflation surged in 2021 due to a robust recovery from the pandemic recession in 2020. By June 2022, consumer prices had jumped by 9.1% compared to the previous year, marking the highest increase in four decades. This acceleration was largely driven by supply chain disruptions, with ports, factories, and freight yards struggling to keep up with the rapid economic rebound. However, supply chain issues have eased over the past year, reducing the upward pressure on goods prices. In fact, prices of durable goods even decreased in June.
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