Glassworks in Brooklyn sees unexpected jump in wholesale price inflation

The latest data on wholesale price inflation in the US has caught economists by surprise, with a significant acceleration reported in June. The jump in the Producer Price Index (PPI) marks the highest rate since March 2023, raising concerns about the impact on the economy and efforts to combat high inflation.

The unexpected increase in PPI was driven by a sharp rise in final demand services, particularly trade services margins, which surged 1.9% from the previous month. This offset lower energy prices and declining goods production prices, leading to the largest monthly increase for trade services since March 2022.

Economists caution that the monthly data, especially in the category that drove the PPI higher, can be volatile and subject to revisions. Ian Shepherdson, chairman and chief economist for Pantheon Macroeconomics, believes that the spike in margins is not indicative of a broader inflationary trend and expects pressure on margins to increase as consumer spending growth slows.

Despite the concerns raised by the PPI data, experts suggest looking beyond the volatility and focusing on the ‘core core’ inflation indicators. By excluding energy, food, and trade-related prices, the core PPI showed a 0.4% increase for the month and a 3% rise annually, the highest rate since April 2023.

While the recent PPI figures may raise eyebrows, economists believe that inflation is still on a downward trajectory. The Federal Reserve closely monitors inflation trends and is likely to base its decisions on the headline and core Personal Consumption Expenditures (PCE) index.

Overall, the data suggests that while there may be short-term fluctuations in inflation measures, the broader trend is towards a slowdown in price increases. With energy prices easing and supply-side pressures diminishing, the outlook for inflation in the US remains relatively stable for the time being.