WASHINGTON — The June producer price data are not as bad as on their face, reflecting in part a severe seasonal adjustment for energy prices. And July energy prices are steady to lower, suggesting there could be retracement ahead.
June PPI was up 0.8% (it biggest gain since September 2012), and core was up 0.2% (0.162% unrounded). These produced over-the-year gains
of 2.5% overall (a new 12-month high pace) and 1.7% core.
Food gained 0.2% as prices of meats and soft drinks surged. They were offset by a 26.8% decline for eggs. Eggs, in turn, seesawed after a 41.6% gain last month.
Energy prices rose 2.9%, their worst showing since February, as gas grew 7.2%, diesel was up 1.1% and heating oil gained 6.1%. Liquid petroleum gas posted a 6.1% drop. Unadjusted energy prices were just 1.0% higher, so the adjustment bolstered the overall gain.
In core, cars were up 0.8% (up 0.7% before adjustment, so better demand probably also boosted prices), light trucks rose 0.2%, pharmaceuticals increased 0.4% and home furniture gained 0.3%. These all added to the core index gain.
We would ignore the overall gain in this month's PPI as gas is steady to lower in July. Also, core intermediate and crude less energy prices are both up just 0.1%, indicating no big gains are in train.
The overall take-away is that inflation is modest. Pricing in some key areas such as construction materials weakened, reflecting builder caution in the face of higher interest rates and suggesting underlying pressure will not break out.
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