U.S. producer prices fall sequentially in July, CPI likely to have risen slightly

U.S. producer prices dropped in July on sequential basis, coming in contrary to the consensus expectations of a modest rise. Producer prices dropped 0.1 percent in the month, as compared with consensus expectations of a rise of 0.1 percent. Stripping food, energy and trade, the producer price inflation remained flat on the month.

Delving into details, prices of goods and services dropped on the month by 0.1 percent and 0.2 percent. Within goods category, food prices growth was flat, while the weakness in energy prices diminished compared to earlier months. On a year-on-year basis, producer price inflation was up 1.9 percent from June’s 2 percent and PPI excluding food, energy and trade were up 1.9 percent.

Personal consumption PPI, the BLS series that tracks pipeline prices pressures for CPI inflation, dropped 0.1 percent on the month; however, growth on an annualized basis remained stable at 1.9 percent. Stripping food, energy and trade services, PPI personal consumption was a bit stronger, registering growth of 0.1 percent sequentially.

Producer price pressures are seen as still strong at this point, although the reversal of the recent upward momentum in producer price index is disappointing, particularly because the slowdown appears to be synchronized with similar moves in the import and consumer price indices, noted Barclays in a research report. Also, pipeline price pressures are expected to stay strong, reflecting the fact that the headwind from imported inflation and global commodity prices has reduced in recent months.

“For the July CPI report, due for release tomorrow, we expect headline CPI to have increased by a soft two-tenths to 0.2 percent m/m (1.8 percent y/y) and core CPI to have increased 0.2 percent m/m (1.7 percent y/y)”, added Barclays.

At 16:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was slightly bullish at 69.1659. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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