U.S. producer prices came in slightly above expectations in June, with the final demand PPI rising 0.1 percent sequentially. On a year-on-year basis, PPI rose 1.8 percent. The core producer prices, which excludes food and energy, rose 0.2 percent sequentially and 2.3 percent year-on-year.
However, the version of core PPI that also excludes the highly volatile trade margins came in flat at 2.1 percent year-on-year, possibly implying that underlying strength in PPI might not be as solid as the headline data suggest.
The June report continued to show a divide between the goods and services components. Goods pipeline inflation continued to be weak throughout the board, while services inflation held up well.
Personal consumption PPI, which widely tracks the trend in the annual CPI measure, rose 0.2 percent sequentially and 1.8 percent year-on-year. The core version of personal consumption PPI that excludes food and energy also rose at a strong rate of 0.5 percent sequentially and 2.5 percent year-on-year.
“Overall, we see the improvement in the pace of inflation for CPI and PPI as a positive step, but would caution against extrapolating one month of solid data. We think that given the recent broad-based weakness in inflation, the FOMC would need to see a sustained improvement in the trend of consumer and producer prices before being comfortable that it is making sufficient progress toward its price stability mandate”, said Barclays.
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