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US June PPI a Surprise, Down 0.2% on Food Reversal

US business prices fell 0.2% in June, a fourth decline in the last five months. The June drop was a surprise as analysts had expected a repeat of May’s 0.4% increase.

With some states reversing some of their reopening plans and layoffs remaining high, prices could pull back further in the coming months.

Last month’s Producer Price Index gain did not fully pass through to the consumer level, but the day’s June data will likely push analysts to temper their forecasts for next week’s consumer price report to be released Tuesday.

Food prices were the key factor, falling by 5.2% in June after a 6.0% rise in May. Meat prices fell 44.5% in the current month after a 69.1% increase in the previous month, accounting for much of the sharp food price moves over those two months.

Energy prices posted a second straight increase, rising by 7.7% in June on a 26.3% rise in gasoline prices and 53.3% rise in home heating oil prices. Energy prices had dipped considerably during the February-April period due to the severe lack of demand, one reason they are still down 7.7% year/year despite solid May and June gains.

Excluding the volatile food and energy components, PPI was down 0.3%, well below the 0.1% increase expected. The BLS’s preferred core measure, which also excludes a 1.8% drop in trade services prices, rose by 0.3% in the month, but was still down 0.1% year/year.

Overall PPI prices stand 0.8% below their year ago level, while prices excluding food and energy were up only 0.1%, showing a lack of inflationary pressures despite improvements in employment and consumption in recent months.

Trade services prices were cut by margins on machinery and vehicle wholesaling. Prices of both passenger cars and light motor trucks declined in the month, pulling down the core.

Kevin Kastner

Julie Ros

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