Wholesale prices were unchanged in July, delivering another better-than-expected inflation report and adding to signs that price pressures may finally be moving in the right direction.
Why it matters: Producer prices can provide an early indication of inflation pressures that may eventually reach consumers, making the report particularly important as the Federal Reserve debates whether another rate hike is necessary.
- The Producer Price Index was flat in July, up from the 0.3% decline in June but still the second-best monthly reading of the past 11 months. Economists had expected prices to rise 0.2%.
- Annual producer inflation slowed considerably, falling to 4.7% from 5.5% in June. That was the lowest rate since March and better than economists’ expectations for 4.9%.
Core prices, which exclude food and energy, rose 0.2%, slowing from June’s 0.4% increase and beating expectations for a 0.3% gain. It was also the second-smallest monthly increase in nearly a year.
- Core producer inflation slowed to 4.2% annually, down from 4.7% and the lowest level since March.
- One measure was less encouraging. Prices excluding food, energy and trade services rose 0.4% after increasing just 0.1% in June. Still, annual growth slowed to 4.7% from 5.0%, the lowest level in three months.
Impact on Mortgage Rates: Wholesale inflation remains elevated, but nearly every major annual measure is moving lower. Because producer prices can eventually feed into consumer prices, continued improvement could reduce the need for the Federal Reserve to raise rates again and help keep upward pressure off mortgage rates.
The bottom line: Inflation isn’t back to normal yet, but it’s moving in the right direction. Combined with this week’s consumer inflation data, July’s PPI report gives the Fed another reason to be patient before considering another rate hike.