US Producer Prices Unchanged in July, Further Dimming Rate Hike Odds

• U.S. producer prices were unchanged in July as goods prices fell and the cost of services increased marginally, bolstering financial market expectations that the Federal Reserve could keep interest rates unchanged next month.
• "It's now looking far less likely that the FOMC will feel the need to hike as soon as September," said Stephen Brown, chief North America economist at Capital Economics. The flat reading in the Producer Price Index for final demand last month followed ​a revised 0.1% drop in June, the Labor Department's Bureau of Labor Statistics said. Economists polled by Reuters had forecast the PPI rebounding 0.2% following a previously reported 0.3% decline in June.
• In the 12 ​months through July, the PPI increased 4.7% after advancing 5.5% in June. Most of the PPI data are collected early in the month, meaning that sharp oil price ⁠increases toward the end of July were probably not reflected in the PPI. As such, economists expected higher PPI readings in August, and some saw a rate hike this year as still on the table.
• Goods prices dropped ​0.7% after sliding 1.4% in June. Energy prices decreased 3.1%, with wholesale gasoline prices falling 5.7%. Food prices declined 0.9% as fresh and dry vegetables tumbled 34.9%. Wholesale lettuce prices plunged a record 73.0% amid a cyclosporiasis outbreak, helping to ​more than offset a 37.0% surge in egg prices. Grain prices shot up 14.8%.
• Excluding the volatile food and energy components, goods prices rose 0.1%, lifted by a 1.3% advance in tyres as well as a 1.5% increase in iron and steel scrap, and 4.2% surge in transformers and power regulators. A narrow measure, which strips out foods, energy and trade services, rose 0.4% after edging up 0.1% in June. The so-called core PPI increased 4.7% in the 12 months through July after rising 5.0% in June.
• The cost ​of services increased 0.2% after climbing 0.5%. They were lifted by a 6.5% jump in portfolio management fees. That was partially offset by a 3.4% decrease in airline fares. Hospital outpatient prices increased 0.9%. Hotel and motel ​room prices fell 0.2%. The cost of transporting freight by road dropped 1.8%.
• Portfolio management fees, airline fares, and hotel and motel rooms are among the components that go into the calculation of the PCE inflation measures. Based on the CPI and PPI data, ‌economists forecast ⁠the PCE price index rebounding 0.1% in July after dipping 0.1% in June. That would translate to a 3.6% year-on-year increase in PCE inflation after rising 3.7% in June.

(Source: Reuters)