WASHINGTON, July 15 - U.S. wholesale inflation cooled in June as producer prices unexpectedly declined, signaling a pullback in inflationary pressure before recent developments in the Middle East. The Labor Department's Bureau of Labor Statistics reported that the Producer Price Index (PPI) for final demand fell 0.3% in June.
The June drop followed a downward revision to May's data, which showed a 0.6% increase instead of the previously reported 1.1% gain. Economists surveyed by Reuters had been anticipating the PPI to be unchanged for June.
On an annual basis, the PPI rose 5.5% in the 12 months through June, compared with a 6.0% year-on-year increase in May. The monthly decline in the index was driven primarily by a 1.4% fall in goods prices - the largest monthly drop in goods costs since July 2022.
Energy-related costs played a major role in the goods-price reduction. The cost of energy products fell 6.4% in June. Wholesale food prices also declined, slipping 0.6% over the month. By contrast, prices for services continued to rise, increasing 0.2% in June.
The report arrived as geopolitical tensions flared. The ceasefire between the United States and Iran collapsed last week after commercial tankers were fired upon in the Strait of Hormuz, prompting military strikes between the United States and Iran. Following those events, oil prices rose to a four-week high after Washington reimposed a naval blockade of Iran.
This PPI release comes a day after the government reported that the Consumer Price Index (CPI) fell 0.4% in June - the largest monthly decline since April 2020 - after a 0.5% increase in May. The CPI decrease, largely reflecting lower energy prices, slowed the annual increase in consumer inflation to 3.5% from 4.2% in May.
The Federal Reserve monitors the Personal Consumption Expenditures (PCE) Price Indexes when assessing progress toward its 2% inflation goal.
Before the PPI figures were released, economists had estimated that PCE inflation excluding food and energy - so-called core PCE - climbed 0.2% in June, down from 0.3% in May. That pace would equate to a 3.3% year-on-year increase in core PCE, compared with a 3.4% year-on-year rise in May.
Financial markets were pricing in the expectation that the U.S. central bank would leave its benchmark overnight interest rate unchanged in the 3.50%-3.75% range this month, though traders still anticipated a potential rate increase in September.
Inflation on the Consumer Price Index measure was last below 2% in early 2021. Fed Chair Kevin Warsh told lawmakers on Tuesday that the central bank had "no tolerance for persistently elevated inflation."
Implications - The June PPI decline was concentrated in goods and energy, while services pressures remained. The data contributed to a softer near-term inflation picture but coincided with geopolitical events that pushed oil prices higher, introducing uncertainty for future inflation readings and policy decisions.