Pace is Still Cooling from early 2024 Trends

• Topline PPI rose by 0.2% on a seasonally adjusted basis in June 2024. 

• Core PPI, less Food & Energy, gained 0.4% in June 2024, May 2024 growth was also revised up.

• Services PPI rebounded in June 2024, rising by 0.6% for the month; Goods prices continued to decline (0.5%). 

• Producers’ Energy prices declined by 2.6% in June 2024, adding to confidence that consumer price pressures can continue to ease.

The Producer Price Index (PPI) was up by 0.2% on a seasonally adjusted basis in May 2024 versus April (+0.4% non-seasonally adjusted). This represents a 2.7% year-over-year gain. This rise follows a modest decline in May 2024 of -0.03% (revised from -0.25%), yielding an annualized pace of 1.2% when averaging through the past two months’ volatility. Costs for service industry businesses were the primary culprit behind June’s stronger PPI inflation result, with Goods producers seeing yet another decline – their seventh in the past nine months.

Prices in Final Demand for Goods producers posted a second consecutive monthly slide in June 2024, falling by 0.5% for the month after a 0.8% decrease in May. Costs for Goods-producing businesses have not seen a monthly annualized pace of inflation above 2.0% since February 2023 (+5.3%). 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 supply-side price pressures.

Energy PPI declined by 2.6% in June 2024, following on from a 4.6% decline in the month prior. Energy PPI is now down by 1.3% year-over-year, regaining a foothold in negative territory after trending up through the first half of the year. Energy-heavy Transportation & Warehousing operations fell on both an intermediate- and final-demand basis in June, indicating further supply-side price pressure relief through the U.S. economy and ultimately for consumers on store shelves. The downward-trending Energy PPI pace, which lies at the root of all price pressures in the U.S. economy, implies that the second half of 2024 will see diminishing cost pressures from producers’ own energy bills, as well as the cost of shipping goods to retailers.

This week’s PPI and CPI reports combine to lift hopes that the Fed can move confidently toward lower interest rates in the months to come. Early-2024 concerns that rising energy costs and producer price inflation would further delay the resumption of easing consumer price pressures were not realized. This likely undermined business bottom lines as inflation-weary consumers slowed demand and began to recalibrate household balance sheets, preventing the passthrough of costs that was so unmitigated during inflation’s peak. But a consumer spending slowdown and, thus, temporarily weaker profits for businesses in the near term will pay dividends through more sustainable growth prospects over the next few years.