+2.3% Year-Over-Year (Seasonally Adjusted)

• Topline PPI rose by 0.1% on a seasonally adjusted basis in July 2024 

• Core PPI, less Food & Energy, fell by 0.05% in July 2024

• Services PPI fell for the first time in seven months (-0.2%); Goods PPI up sharply in July 2024 (+0.6%) 

• Producers’ Energy prices rebounded in July 2024, rising by 1.9%

The Producer Price Index (PPI) was up by 0.1% on a seasonally adjusted basis in July 2024 versus June (+0.0% non-seasonally adjusted). This slowdown in producer price increases will be very much welcomed after the July 2024 jobs report sparked panic that the Fed’s battle against inflation was beginning to run at odds with its employment maximization mandate. July’s PPI result represents a 2.3% year-over-year gain, but a mere +1.2% on a monthly annualized growth basis. Goods and Services swapped roles in July, with topline PPI growth attributed to goods manufacturers’ costs while service providers saw costs recede for the month. 

The PPI Final Demand for Goods category revealed that producers’ costs rose by 0.6% in July 2024. This is the sharpest gain for Goods producers since February 2024 (+1.1%). But with July being only the third month out of the past 10 to see any increase in Goods PPI, year-over-year growth in this category is still up only 1.7%. With average U.S. wage growth having outpaced topline consumer price inflation for the past year, subdued Goods PPI growth offers solid support for households to rebuild purchasing power with respect to big ticket items like vehicles and home goods. As interest rates look set to begin falling soon, households will be able to resume Goods spending – likely in early 2025 – without significant fear of demand-side inflation compounding what little supply-side price pressure there has been recently from Goods producers’ costs. 

Services PPI also reversed course in July 2024. But as opposed to the jump seen for Goods producers’ costs, service providers saw a 0.2% decline in their costs for the month. This result is the first decline in Services PPI since December 2023 (-0.1%), and the largest monthly decline since March 2023 (-0.2%). Services PPI is up 2.6% versus one year ago. Given that services represent the largest share of consumer spending at nearly 68% of total Personal Consumption Expenditures, easing price pressures upstream bodes well for a continued downward trend in consumer price inflation in the months to come. 

Energy PPI jumped by 1.9% July 2024 after the category enjoyed outright declines in three of the prior four months. Even with the gain in July, however, Energy PPI is up by only 0.4% year-over-year. Oil prices have seen significant volatility in recent weeks, but have managed to remain near or below $80 per barrel (West Texas Intermediate) for the most part. New concerns regarding Middle East tensions will keep energy PPI top-of-mind for inflation analysis in the weeks to come. Any oil price gains will be quickly reflected in the next few PPI reports and will make their way through to consumers with a lag, potentially offsetting enthusiasm even if consumer price inflation continues along its downward trajectory through the third quarter of this year. 

Wednesday’s Consumer Price Index (CPI) report will carry more weight in the debate regarding the Fed’s pursuit of balance between their inflation target of 2% on average and an unemployment rate that is now clearly trending upward – though is still low by historical standards at 4.3%. But PPI serves as an early warning sensor as to whether any positive (i.e., weaker) CPI inflation results will face hurdles in maintaining momentum as producers look to pass their own rising costs onto consumers in the months to come. July’s PPI report relieved much of that concern for this month, leaving CPI to speak for itself for now.

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