Data released by the US Bureau of Labor Statistics on the 15th shows that the US Producer Price Index (PPI) for June fell by 0.3% month-on-month, a better performance than the market's previous expectation of no change, influenced by a significant drop in energy prices. Analysts point out that although this marks the second consecutive month of cooling inflation signals from US wholesale prices, with the recent renewed tensions in the Middle East, the sustainability of future inflation pressure relief still faces high uncertainty.
The data indicates that the US PPI for June rose by 5.5% year-on-year, with the growth rate slowing down from the revised 6.0% in May. Among the components, goods prices fell by 1.4% month-on-month, the largest single-month decline since July 2022, primarily due to a 6.4% month-on-month decrease in energy costs and a 0.6% month-on-month drop in food prices; gasoline prices plummeted by 12% during this period, contributing nearly two-thirds of the overall decline for the month. The core PPI, which excludes food and energy, rose by 0.2% month-on-month, slightly below market expectations. Service prices saw a marginal increase of 0.2% month-on-month, driven by rising trade service prices.
Since the previously released Consumer Price Index (CPI) for June also recorded its largest single-month decline since April 2020 (a 0.4% month-on-month drop), the dual inflation indicators released this week have somewhat reduced the urgency for the Federal Reserve in terms of policy adjustments. However, experts, scholars, and senior Federal Reserve officials generally remain cautious on this matter.
Chris Rupkey, Chief Economist at the US financial institution "Fwdbonds," analyzed that the Federal Reserve's battle against inflation is far from over, but the decline in factory-level prices indicates that producers' momentum to pass on cost pressures to the consumer end is weaker than expected, which has to some extent dampened market expectations for the frequency of future Federal Reserve interest rate hikes.
The new Federal Reserve Chairman, Kevin Warsh, explicitly reiterated during a congressional hearing that the decline in June's price data does not mean the Federal Reserve can declare that "the task of fighting inflation is complete." The market currently expects that, considering core inflation levels remain significantly above the Federal Reserve's long-term 2% target, the possibility of the Federal Reserve continuing to raise interest rates at its policy meeting in September this year still exists. The Department of Commerce is expected to release the Personal Consumption Expenditures (PCE) price index, the Federal Reserve's preferred inflation gauge, later this month, at which point policymakers will have clearer judgment basis regarding the macroeconomic inflation trend.
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