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Washington - Wholesale prices in the US unexpectedly fell in July by the most in almost a year, a sign inflation is likely to stay muted.
The 0.4% drop in the producer-price index, the biggest since September, followed a 0.5% gain the prior month, a Labour Department report showed Friday in Washington. The median forecast of 63 economists surveyed by Bloomberg called for a 0.1% advance.
Prices in the production pipeline remain tame, reflecting the lingering influence of lower energy costs, the strong dollar and weak global demand. Federal Reserve officials, considering when to lift interest rates, are watching for signs of whether inflation is moving toward their goal.
“There’s no real inflation in the pipeline,” said Scott Brown, St. Petersburg, Florida-based chief economist for Raymond James Financial Inc., who was the only one in the Bloomberg survey to correctly forecast the drop in PPI. “It reflects very weak global demand.”
Separately, the Commerce Department reported that retail sales were little changed in July as rising demand for autos limited purchases of other goods.
Survey results
Projections for producer prices ranged from a drop of 0.4% to an advance of 0.4%, according to the Bloomberg survey of economists.
The decline in the producer price index was paced by a 1% decrease in energy costs and a 1.1% drop in food, the report showed. Profit margins at retailers and other trade services also retreated, led by a 6% plunge clothing and jewelry merchants that was the biggest since records began in 2012.
From a year earlier, producer prices fell 0.2%.
Excluding food and energy, wholesale prices declined 0.3% following a 0.4% advance the prior month. Those costs were up 0.7% from July 2015.
Excluding food and energy and also eliminating trade services, producer costs were little changed. Some economists prefer this reading because it strips out the most volatile components of PPI.
One caveat to the otherwise weak readings was that health-care prices, which are used to calculate the Commerce Department’s consumer spending inflation index - the Fed’s preferred price measure - picked up. Those costs rose 0.3% in July before adjusting for seasonal variations following, the biggest gain since October, according to the report.
The producer price gauge is one of three monthly inflation reports released by the Labour Department, the other two being import costs and consumer prices.
