US producer prices were unchanged in July, adding to expectations that the Federal Reserve may leave interest rates unchanged at its September policy meeting as inflationary pressure showed further signs of easing.
The Labor Department said on Thursday that the Producer Price Index (PPI) for final demand was flat in July after a revised 0.1% decline in June. Economists polled by Reuters had expected producer prices to rise 0.2%.
On a year-on-year basis, producer prices rose 4.7% in July, slowing from a 5.5% increase in June.
The softer reading comes a day after data showed US consumer inflation remained moderate in July, reinforcing expectations that the Fed may have less reason to tighten monetary policy next month.
Financial markets were pricing in a 67.6% chance that the Fed would keep its benchmark overnight interest rate at 3.50% to 3.75% at its September 15-16 meeting, according to CME’s FedWatch Tool. The probability of a rate hike fell to 32.4%, from 40.6% a day earlier and 55% a week ago.
Goods prices fell 0.7% in July after a 1.4% decline in June, with energy prices down 3.1% and wholesale gasoline prices falling 5.7%.
Food prices also declined 0.9%, although grain prices jumped 14.8% and egg prices rose 37%.
Services prices increased 0.2% in July, easing from a 0.5% rise in June. The increase was driven partly by a 6.5% jump in portfolio management fees, while airline fares fell 3.4%.
The data also pointed to a relatively stable labour market. Initial claims for state unemployment benefits rose by 9,000 to a seasonally adjusted 209,000 for the week ended August 8, while continuing claims fell by 22,000 to 1.777 million.
Still, the September decision remains dependent on further inflation and employment data, with the Fed set to receive August consumer price and labour market reports before its meeting.
Some economists also cautioned that inflation remains above the Fed’s 2% target and could still leave the door open to a rate hike later this year.
Reuters
