13 July 2023
Yesterday, consumer price inflation slowed down at a faster rate than expected. This has shifted the focus onto the producer price inflation, with predictions that it would slow to just +0.4% YoY in June. However, the actual figure was even lower, as it fell to +0.1% MoM, resulting in PPI barely maintaining positive growth on a YoY basis at +0.1%. This marks the slowest YoY PPI print since August 2020.
Looking deeper into the data, it is worth noting that core PPI, which excludes Food, Trade, and Energy, rose by 2.6% YoY. While still showing growth, this is the slowest pace since February 2021.
In terms of final demand services, the index increased by 0.2% in June, matching the previous month. Among the components, prices for final demand services, excluding trade, transportation, and warehousing, experienced a 0.3% increase. Margins for final demand trade services rose by 0.2%, but the index for final demand transportation and warehousing services dropped by 0.9%.
One notable factor in the rise of prices for final demand services was the 5.4% advance in the index for deposit services. Additionally, the indexes for food and alcohol retailing, traveler accommodation services, insurance, hospital inpatient care, and airline passenger services also saw increases. On the other hand, prices for truck transportation of freight declined by 2.1%. The indexes for food and alcohol wholesaling, as well as residential real estate loans, also showed decreases.
In terms of final demand goods, prices remained unchanged in June after experiencing a 1.6% decrease in May. The rise in the index for final demand energy by 0.7% offset the falling prices for final demand goods, excluding foods and energy, as well as for final demand foods, which decreased by 0.2% and 0.1% respectively. Notably, prices for gasoline rose by 3.4%. The indexes for electric power, beef and veal, chicken eggs, and medical, surgical, and personal aid devices also showed increases. Conversely, prices for iron and steel scrap dropped by 10.8%, and the indexes for diesel fuel, oilseeds, industrial chemicals, and residual fuels also decreased.
Analyzing the pipeline for PPI, there are indications of further deflation, with intermediate demand goods prices down over 9% YoY. This is even worse than the trough experienced during the COVID lockdowns.
While this may be seen as positive news for The Federal Reserve (The Fed) and the bulls in the market, as it suggests potential easing of inflationary pressures, there are concerns about whether the deflationary pressure is signaling an impending recession.