July 2017 Producer Price Index

Prices paid by producers and wholesalers declined in July 2017 according to the Bureau of Labor Statistics.  Falling 0.1 percent in the period, this is the first contraction since August of last year.  In addition to monthly weakness, the year-over-year statistic slowed for a second consecutive month to 1.9 percent from 2.0 percent in June. 

Prices for both goods and services fell.  Final demand goods declined 0.1 percent after edging up 0.1 percent in June.  Energy led this segment lower (falling 0.3 percent), but other components declined as well; prices excluding food and energy dropped 0.1 percent even though the food index was unchanged.  Services’ prices moved down 0.2 percent in July, falling for the first time since February when it declined 0.3 percent.

Earlier stages of output suggest further slowing in the months ahead.  Processed goods for intermediate demand inched down 0.1 percent after declining 0.2 percent in June.  This deflationary move was led by the least volatile components (materials less food and energy) which dropped 0.3 percent.  Unprocessed goods for intermediate demand fell 0.4 percent in the period; energy was the primary culprit of this downtick, falling 5.1 percent.  Finally, services for intermediate demand declined 0.3 percent, giving back roughly half of the prior month’s gain. 

Disinflation is becoming more evident in this indicator once again.  The headline’s year-over-year tally slowed for a second consecutive month.  Moreover, prices in the earlier stages of output decelerated for both goods and services.

Inflation continues perplexing even the most experienced economists.  Our nation’s central bank has been trying to raise rates for years, making little progress.  Recent inflation data could be the beginning of a new round of tepid price movements, which may result in further delays of the Federal Reserve’s efforts to normalize interest rates.