Producer Prices Miss Forecast, Supporting Case for Dovish Fed

U.S. Producer Prices Stall in June as Services Edge Down

The U.S. Producer Price Index (PPI) was flat in June, coming in below market expectations of a 0.2% increase. According to the Bureau of Labor Statistics, this stabilization follows a 0.3% gain in May and a 0.3% drop in April, signaling a mixed trend in wholesale inflation. On a year-over-year basis, the final demand index rose 2.3%, reflecting modest producer-side inflation pressures.

Goods Prices Climb, Driven by Core Categories

Final demand goods prices rose 0.3% in June, the strongest monthly increase since February. Notably, core goods—those excluding food and energy—also advanced 0.3%, matching the overall gain. Energy prices rebounded 0.6%, led by gasoline and residential electric power, while food prices edged up just 0.2%. Poultry, meats, and tree nuts saw price increases, but were offset by a sharp 21.8% drop in egg prices and declines in plastics and natural gas liquids.

Services Segment Contracts, Led by Accommodation and Transportation

The services component of the PPI slipped 0.1% in June, reversing a 0.4% rise in May. The decline was driven largely by a 4.1% plunge in traveler accommodation services and softness in retail sectors such as automobile parts, airline passenger services, and deposit services. Transportation and warehousing fell 0.9%, while trade service margins were flat. Portfolio management services provided a bright spot, climbing 2.2% month-over-month.

Core PPI Holds Steady, Offering Relief on Inflationary Trends

Excluding food, energy, and trade services, core PPI was unchanged in June after a modest 0.1% gain in May. On an annual basis, this index rose 2.5%, a signal that underlying producer inflation remains contained. Intermediate demand prices—often seen as a precursor to consumer inflation—showed limited movement, with processed goods up 0.1% and services down 0.1%. Notably, natural gas for utilities spiked 12.1%, lifting certain energy-sensitive categories.

Federal Reserve Outlook: Is Cooling Inflation Enough?

The flat PPI print adds to evidence that wholesale inflation is losing momentum, complementing softer consumer inflation readings earlier in the week. While the Fed remains data-dependent, continued stability or softness in input prices could support a more dovish policy stance in the near term. Traders should monitor upcoming CPI and employment reports for confirmation.

Market Forecast: Neutral to Slightly Bullish for Bonds

June’s PPI data reinforce a neutral inflation narrative, reducing pressure on the Federal Reserve to tighten policy further. This environment supports a slight bullish tilt for Treasury markets, particularly on the short end. Equities could also benefit if rate expectations soften, though commodity-sensitive sectors may remain volatile given energy input costs.

More Information in our Economic Calendar.