Wholesale prices fell in June as gasoline costs pulled inflation lower

Wholesale inflation moved lower in June, a welcome signal for investors watching whether price pressure is easing enough to change the Federal Reserve’s rate path. The Bureau of Labor Statistics said Wednesday that the producer price index fell 0.3% from May, driven largely by a steep drop in gasoline.

The producer price index, or PPI, tracks prices businesses receive for goods and services before they reach consumers. It can matter for markets because rising costs at the producer level can later show up in retail prices, while easing costs can reduce pressure on companies to raise what customers pay.

Economists surveyed by Dow Jones had expected the final-demand PPI measure to be flat for the month. From a year earlier, the index was up 5.5%, according to the BLS. The agency also lowered its May estimate, revising that month’s gain to 0.6% from the initially reported 1.1% increase.

Energy did most of the work

The biggest swing came from goods, where prices fell 1.4% in June, the largest monthly decline since July 2022, according to the BLS data cited by CNBC. Energy prices dropped 6.4%, while prices for final-demand food slipped 0.6%.

Gasoline was the standout. Prices fell 12% in the month and accounted for about two-thirds of the decline in goods prices, the BLS said. CNBC reported that oil prices eased during a brief pause in tensions between the U.S. and Iran, helping bring down energy-related costs.

Services moved the other way. Prices for services rose 0.2% in June, supported by a 0.4% increase in trade services, according to the BLS. Trade services measure margins received by wholesalers and retailers, rather than the sticker price of the goods themselves.

A narrower inflation measure also cooled. Core PPI, which removes food and energy because those categories can swing sharply from month to month, rose 0.2%. Dow Jones had expected a 0.3% increase. Core PPI excluding trade services gained 0.1% for the month and was up 5.1% from a year earlier.

The Fed gets another cooler inflation print

The wholesale report followed Tuesday’s consumer price index release from the BLS. That report showed consumer prices fell 0.4% in June, bringing the annual inflation rate to 3.5%. The monthly decline was the largest since April 2020, shortly after the Covid pandemic was declared, according to CNBC.

Core consumer inflation fell to 2.6% after prices were unchanged for the month, the BLS reported. The consumer price index measures prices paid by households, while PPI looks earlier in the pricing chain.

Both reports feed into the personal consumption expenditures price index, the inflation measure the Fed follows most closely. The Commerce Department is scheduled to release that data later this month. For May, the PCE index showed headline inflation at 4.1% and core inflation at 3.4%, according to CNBC.

Inflation remains above the Fed’s 2% target, but the latest data suggest price pressure eased in June. Chris Rupkey, chief economist at Fwdbonds, told CNBC that the Fed’s inflation fight was not over, but said lower factory-level inflation should reduce the pressure on producers to pass higher costs to consumers.

Markets still expect the Fed to approve one interest rate increase this year, potentially as soon as September, CNBC reported. Fed Chairman Kevin Warsh told House lawmakers Tuesday that June’s decline in prices was not a “mission accomplished” moment for inflation.

This story draws on original reporting from CNBC.