CNN
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U.S. headline inflation eased as expected in July, easing after an unexpected spike the previous month. This sets the stage for a more critical reading of the rate hikes coming out on Wednesday.
The producer price index, a measure of average price changes seen by producers and manufacturers, was 2.2% in the 12 months ended July, a sharp retreat from the 2.7% increase recorded in June, the Bureau of Labor Statistics said in a Tuesday release.
On a monthly basis, prices rose 0.1%, a slower pace than the 0.2% increase seen in June.
Economists had expected prices to rise 0.2% on a monthly basis and fall to 2.3% annually, according to FactSet estimates.
PPI acts as a potential bellwether for retail-level inflation in the coming months. On Wednesday, the BLS will release the Consumer Price Index for July, which provides an important look at how prices are changing in the daily lives of consumers.
According to the BLS report, the modest monthly increase in overall PPI was attributed to a 0.6% rise in commodity prices. Services prices fell 0.2%, driven largely by a correction in the volatile trade services sector (a measure of margins), which fell 1.3% after a 1.4% jump in June and a disappointingly strong overall PPI reading that month.
When stripping out energy and food prices – the most volatile sectors – core PPI prices were flat for the month, which reduced the annual gain to 2.4%, the slowest since March.
The PPI, albeit nuanced, shows how inflation is on the upside for consumers, usually playing second fiddle to the CPI and landing a day after its retail-level echo.
This month, however, the PPI serves as the opening act – and all eyes are on the leader.
Economists expect the CPI to show inflation continuing to decline, although the improvement will appear more gradual than Tuesday’s data.
According to FactSet estimates, CPI is expected to rise 0.2% from June, boosted by higher gas prices, and to be steady at an annual rate of 3%. Core CPI is expected to rise 0.2%, but will slow to 3.2% on an annual basis.
This week’s inflation data, especially Wednesday’s CPI, is expected to be closely scrutinized as it comes on the back of an unexpectedly weak jobs report that sent markets reeling last week.
This story is developing and will be updated.
