Producer Prices Mostly Soft

Mostly soft but with interesting signs of pressure is a fair assessment of the June producer price report where the headline 0.1 percent monthly gain came in as expected. The ex-food ex-energy reading rose 0.3 percent which is 1 tenth above expectations though ex-food ex-energy ex-trade services misses expectations by 2 tenths coming in unchanged.

Areas of weakness include energy which fell 3.1 percent in the month and also finished goods which dropped 0.4 percent and include a 0.8 percent decline for computers and no change for either autos or light trucks. Government purchases were also a negative at minus 0.4 percent.

Strength includes foods with a 0.6 percent monthly gain and total services which rose 0.4 percent. Within services, trade services jumped 1.3 percent to more than reverse two prior months of declines in a gain that points to welcome price traction for wholesalers and retailers.

A leading sign of strength comes from the ex-food ex-energy reading for personal consumption, rising a strong 0.5 percent that points to lift for the PCE core, a measure that will be posted at month end and which is the central gauge for Federal Reserve policy makers. This year-on-year rate at the producer level is 2.5 percent, up but not very much from 2.4 percent in May.

Other year-on-year rates aren't moving at all, down 1 tenth overall to a very subdued 1.7 percent and unchanged for ex-food ex-energy at 2.3 percent. When excluding trade services as well, the yearly rate is down 2 tenths to 2.1 percent.

This report doesn't have the same force as the higher-than-expected 0.3 percent rise in core consumer prices posted yesterday, but there are areas of strength that keep in play the possibility, however perhaps unlikely, that the Federal Reserve will not feel the need to cut rates to boost inflation at their month-end policy meeting.