driven by energy prices and wholesale/retail costs
The producer price index (PPI) for final demand increased 1.0% in July, unchanged from June; it outpaced the consumer price index’s 0.5% monthly increase. Final demand energy prices rose 2.6% and final demand transportation and warehousing costs rose 2.7%. Trade services-the markups of wholesalers and retailers-rose 1.7% on the month. Producer prices of foods fell 2.1% on the month after rising 12% between August 2020 and June 2021.
In the PPI report’s details, notable increases included the producer prices of transportation of passengers, up 9.0% on the month; final demand construction costs, up 1.5% on the month; and unprocessed fuel, up 11.2%.
The PPI final demand excluding food, energy, and trade services rose 0.9% in July after a 0.5% increase in June. This measure of “core” producer prices still ends up being heavily influenced by energy prices, though, since transportation costs tend to track the cost of transport fuels.
From a year earlier, the producer price index for final demand rose 7.8%, the highest increase since comparable data began in 2010. The producer price index for all commodities, an older aggregation of producer prices, rose 19.8% in July in year-ago terms, the fastest increase since 1974.
Producer price inflation remained historically high in July. The producer price index rose faster than the consumer price index on the month, largely reflecting the larger weight of energy goods and related services in the producer price basket. But prices of most manufactured goods also rose sharply in recent months; businesses that have the capacity to fill orders amid the supply chain disruptions and shortages of 2021 are commanding higher prices.
Producer price inflation will slow in the next 12 months as supply chain conditions improve and the economy puts to work its large margin of underutilized productive capacity-the industrial capacity utilization rate was 75.4% in June, down from its recent peak of 79.8% in September 2018; nonfarm payroll employment is 5.7 million below its February 2020 level.
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