The producer price index rose a seasonally adjusted 0.2% in July, the Labor Department reported Friday.
The increase matched the expectation of economists surveyed by IFR Markets. Analysts said the report may only reinforce the case for a further Federal Reserve easing next month.
“This benign inflation report points to another quarter point reduction in interest rates at the next Fed meeting in September,” said Scott Anderson, chief economist at Bank of the West. The futures market probability of a Fed rate cut by September is still 100.0%, he said.
“The market is currently placing the odds of a 25 basis point rate cut in September at 69% and the probability of a 50 basis point cut at 31%,” he added.
On an unadjusted basis, the PPI rose 1.7% for the 12 months ended in July. The rise in the overall PPI was led by a 0.4% gain in the goods index as construction prices rose 0.6%.
However, the PPI minus the food and energy components, dipped 0.1% in July, the first drop since 2017. Economists surveyed by IFR Markets has expected the PPI minus food and energy to have risen by 0.2%.
And the PPI minus foods, energy and trade services fell 0.1% in July, the first decline since October 2015. For the 12 months ended in July, the PPI less foods, energy and trade services was 1.7% higher.
“Final demand U.S. producer prices increased 0.2% in July, in-line with our estimate and up from 0.1% in June,” Anderson said. “Goods prices rose 0.4% after falling 0.4% in June while services prices declined 0.1% after a 0.4% advance in June. Core producer prices – excluding the volatile food and energy components – fell 0.1%, the first decline in two years.”
Overall producer prices are up 1.7% from a year earlier, unchanged from the previous month. Core prices are up 2.1% from a year ago, down from 2.3% in June and the slowest pace in two years.
Trump talks China talks
President Donald Trump said talks with China planned for next month could be called off after the trade war between the world’s biggest economies abruptly escalated in recent days.
Trade negotiators are currently scheduled to meet in Washington in September.
“We’ll see whether or not we keep our meeting in September,” Trump was quoted by Bloomberg News as saying. “If we do, that’s fine. If we don’t, that’s fine.”
Trump tamped down worries the U.S. would move to devalue the dollar. He said that getting lower interest rates from the Federal Reserve that he wants would have the same effect.
