The producer price index fell 0.3% in June, defying the Dow Jones consensus estimate that called for the wholesale cost gauge to remain unchanged.
The Bureau of Labor Statistics released the data on Wednesday, marking the second consecutive day of better-than-expected inflation readings for the U.S. economy.
On an annual basis, the PPI still reflected a 5.5% inflation rate, but the monthly decline offered a meaningful reprieve from persistent pricing pressures.
The May PPI reading was revised sharply lower, from an initially reported gain of 1.1% to just 0.6%, adding further relief to the overall inflation picture.
Excluding food and energy, the core PPI rose 0.2%, coming in slightly below the forecast for a 0.3% increase, while core PPI less trade services rose just 0.1%.
Energy costs drove the decline, with goods prices posting a 1.4% monthly drop — the steepest fall since July 2022 — as energy slumped 6.4% and final demand food prices fell 0.6%.
Gasoline tumbled 12% for the month, accounting for roughly two-thirds of the total monthly decrease in wholesale prices.
The easing in energy costs was partly attributed to a brief pause in tensions between the U.S. and Iran, which helped push oil prices lower during the period.
Services prices moved in the opposite direction, rising 0.2% for June, supported by a 0.4% increase in trade services.
The wholesale data followed Tuesday’s report showing the consumer price index posted an unexpectedly sharp decline of 0.4% in June, pulling the annual inflation rate down to 3.5% — the largest monthly drop since April 2020.
Core consumer inflation slipped to 2.6% after prices were essentially unchanged for the month, suggesting underlying price pressures may be gradually cooling.
“The Fed’s war with inflation isn’t over by any means,” said Chris Rupkey, chief economist at Fwdbonds, “… but there is good news from the front and the odds of Fed rate hikes should continue to recede as inflation at the factory level is trending lower, and producers will not be passing on their higher costs to the consumer level as much as we previously thought.”
Both the CPI and PPI feed into the Federal Reserve’s preferred inflation gauge, the personal consumption expenditures price index, which is due from the Commerce Department later this month.
For May, the PCE index showed headline inflation at 4.1% and core at 3.4%, with both figures expected to decline following this week’s softer readings.
Markets continue to anticipate at least one Fed interest rate hike this year, with September cited as a possible timeline for action.
Fed Chairman Kevin Warsh told House lawmakers on Tuesday that June’s price decline did not represent a “mission accomplished” moment in the central bank’s ongoing effort to bring inflation back to its 2% target.
