BUSINESS + ECONOMY

Key US inflation gauge cooled last month to the lowest level in nearly three years

Jul 13, 2023, 7:04 AM | Updated: Jul 26, 2023, 12:02 pm

a person is pictured next to machinery in a factory...

PPI is a closely watched inflation gauge since it captures average price shifts before they reach consumers and is a proxy for potential price changes in stores. (Watchara Phomicinda/MediaNews Group/The Press-Enterprise/Getty Images)

(Watchara Phomicinda/MediaNews Group/The Press-Enterprise/Getty Images)

Minneapolis (CNN) — Wholesale inflation continued its yearlong slowdown last month, rising by just 0.1% for the 12 months ended in June, according to the Bureau of Labor Statistics’ Producer Price Index released Thursday.

The PPI index, a key inflation gauge that tracks the average change in prices that businesses pay to suppliers, has cooled significantly since peaking at 11.2% in June 2022 and has now declined for 12 consecutive months. Annual producer price inflation is at its lowest level since August 2020, BLS data shows.

Economists were expecting an annual increase of 0.4%, according to Refinitiv.

On a monthly basis, prices increased by 0.1%.

Goods prices held steady for the month, after tumbling 1.6% in May, according to the BLS report. As such, prices for services — which increased 0.2% from May — were the primary driver behind June’s slight increase.

PPI is a closely watched inflation gauge since it captures average price shifts before they reach consumers and is a proxy for potential price changes in stores.

While the PPI doesn’t directly correlate into exactly what will come from the following month’s Consumer Price Index — a major inflation gauge that tracks price shifts for a basket of goods and services — it provides a look at whole economy inflation, minus rents, said Alex Pelle, Mizuho Securities US economist.

And that picture right now is looking pretty sharp.

“It’s definitely a good month for inflation,” Pelle told CNN. “You saw that in CPI, and now you’re seeing it in PPI.”

In June, inflation as measured by the CPI cooled to 3% annually, its lowest rate since March 2021, the BLS reported Wednesday.

An improving picture

Both the CPI and PPI have declined monthly since their peaks in June 2022, when record-high energy and gas prices fueled the spikes to 9.1% and 11.2%, respectively.

As such, the base effects of year-over-year comparisons are playing a part in the indexes’ sharp retreats.

Still, underlying inflation is showing a cooling trend as well — albeit more muted.

In the case of PPI, when stripping out the more volatile categories of food and energy, this “core” index rose 2.4% for the 12 months ended in June. That’s a step back from the 2.6% increase seen in May and economists’ expectations of 2.6%.

Core PPI, which ticked up 0.1% on a monthly basis, is at its lowest annual level since February 2021.

Lifting up the doves

Inflation is looking a heck of a lot better than last year, when the Federal Reserve embarked on a campaign to combat price hikes with rate hikes, but economists don’t expect the latest CPI and PPI prints will dissuade central bankers from giving another crank to tighten monetary policy.

Starting in March 2022, the central bank rolled out 10 consecutive interest rate hikes to tame inflation, finally hitting pause last month. The Fed is widely expected to raise rates by another quarter point when it meets later this month.

“[The June data] means that the doves are going to have a little bit better of an argument to hold sooner rather than later, so that does reduce the probability of a second hike this year,” Pelle said, noting the commonly used terms to describe Fed members’ differing monetary policy approaches.

Doves tend to favor looser monetary policy and issues like low unemployment over low inflation, while hawks favor robust rate hikes and keeping inflation low above all else.

But just how long a hold could last is another matter, said Pelle.

The job market is cooling from a scorching state, but it remains historically hot and tight. Considering ongoing demographic shifts (including the massive Baby Boomer generation aging out of the workforce), that tightness could continue, Pelle said.

“Do we really need to be cutting rates if you have GDP running around trend and the labor market still very tight,” he said. “Inflation is coming down, but the economy is maybe growing a little bit into these higher rate levels. So the hold could be longer than people expect. But we might have some of the sting out on getting even higher.”

The-CNN-Wire
™ & © 2023 Cable News Network, Inc., a Warner Bros. Discovery Company. All rights reserved.

We want to hear from you.

Have a story idea or tip? Send it to the KSL NewsRadio team here.

Business + Economy

People skate at Millcreek Common in Millcreek on Monday, Dec. 5, 2022. The New Americans Internatio...

Eric Cabrera

New Americans International Market offers space for newly settled Americans to share culture and connect

The New Americans International Market at Millcreek Common is helping new refugees and immigrants connect with the community.

1 day ago

A customer checks prices while shopping at a grocery store in Wheeling, Ill., Friday, Jan. 19, 2024...

Curt Gresseth

Inflation eases but grocery store prices in Utah still stinging

Inflation eases slightly in April, but in Utah, consumers are still feeling the pinch of grocery-store prices.

2 days ago

FILE - A street sign is seen in front of the New York Stock Exchange June 14, 2022. The U.S. stock ...

Simone Seikaly

LISTEN: Utah analyst on stock market highs

Stock market investors are reportedly energized by a report showing inflation is cooling somewhat across the U.S.

2 days ago

An EV charging in Salt Lake City. SLC, like many cities around the United States, lacks the chargin...

Alexandrea Bonilla

EV charging is lacking in Salt Lake City

Only about 1.6% of Salt Lake City listings are EV friendly. That makes homes with electric vehicle chargers a hot commodity.

3 days ago

A child experiences an interactive art exhibit at "Dreamscapes," the business at the Shops at South...

Aimee Cobabe

Shops at South Town asks temporary business to leave

Dreamscapes interactive art museum will relocate, after spending two years at the Shops at South Town in Sandy, Utah.

3 days ago

FILE: Abravanel Hall in Salt Lake City on Wednesday, May 8, 2024. Jazz owner Ryan Smith and city an...

Jessica Lowell

Mayor trying to keep Abravanel Hall “in its present form”

On Tuesday, Wilson said she's received "an extensive amount of input" about the future of the Utah Symphony's home.

3 days ago

Sponsored Articles

a doctor putting her hand on the chest of her patient...

Intermountain Health

Intermountain nurse-midwives launch new gynecology access clinic

An access clinic launched by Intermountain nurse-midwives provides women with comprehensive gynecology care.

Young couple hugging while a realtor in a suit hands them keys in a new home...

Utah Association of Realtors

Buying a home this spring? Avoid these 5 costly pitfalls

By avoiding these pitfalls when buying a home this spring, you can ensure your investment will be long-lasting and secure.

a person dressed up as a nordic viking in a dragon boat resembling the bear lake monster...

Bear Lake Convention and Visitors Bureau

The Legend of the Bear Lake Monster

The Bear Lake monster has captivated people in the region for centuries, with tales that range from the believable to the bizarre.

...

Live Nation Concerts

All the artists coming to Utah First Credit Union Amphitheatre (formerly USANA Amp) this summer

Summer concerts are more than just entertainment; they’re a celebration of life, love, and connection.

Mother and cute toddler child in a little fancy wooden cottage, reading a book, drinking tea and en...

Visit Bear Lake

How to find the best winter lodging in Bear Lake, Utah

Winter lodging in Bear Lake can be more limited than in the summer, but with some careful planning you can easily book your next winter trip.

Happy family in winter clothing at the ski resort, winter time, watching at mountains in front of t...

Visit Bear Lake

Ski more for less: Affordable ski resorts near Bear Lake, Utah

Plan your perfect ski getaway in Bear Lake this winter, with pristine slopes, affordable tickets, and breathtaking scenery.

Key US inflation gauge cooled last month to the lowest level in nearly three years