Producer Price Index Unchanged in July

Wholesale prices were unchanged in July, as a pullback in energy and food prices helped to offset modest rises in other goods such as tobacco, furniture and prescription medicines.

The producer price index, a broad measure of business-to-business prices for goods and services in the U.S., was unchanged in July, the Labor Department reported Friday, following a 0.6% rise in June.

The core PPI, which excludes food and energy components, was up only 0.1% after falling 0.1% in June. The overall index came in below the Reuters consensus forecast for a 0.1% rise, while the core PPI matched the forecast.

The data offer another suggestion that inflation in the U.S. remains extremely tame, and that wholesale inflation is even starting to moderate. In the 12 months through July, wholesale price inflation slowed to 4.1%, compared to 4.3% in the 12 months through June.

It also adds to economists' argument that Federal Reserve policymakers will leave interest rates unchanged when they meet Aug. 22. The Fed has raised interest rates six times since June 1999 in an attempt to temper demand and ease inflationary pressures in the economy. However, the Fed left rates unchanged at its most recent meeting in June, saying that slower activity in certain portions of the economy had reduced the risk of inflation.

In recent years, modestly rising input costs have been largely offset by increasing efficiency in workers, known as productivity. That trend has allowed businesses to absorb slightly higher wholesale prices and a modest acceleration in wage growth, preventing an outbreak of inflation.

Indeed, anecdotal reports in the Fed's Beige Book recently indicated that gains in productivity are helping most producers are avoid raising prices. But the Fed will likely remain vigilant as strong levels of retail sales and low unemployment increase the risk of inflation, benign measures of consumer and producer prices are likely to keep the Fed on hold for the time being.

Similar to most inflation reports this year, energy costs were a large influence on the PPI in July, when the price of crude oil and derivatives eased from June's higher levels. Overall energy prices were down 0.7% vs. a 5.1% increase in June.

Within the energy category, lower crude oil prices caused a sharp 9.1% drop in the price of gasoline and a 1.3% drop in the price of fuel oil. However, energy prices not related to crude oil were higher. Electric power prices rose 2% and natural gas prices were up 6.2%.

Overall food prices were unchanged in July, as lower prices for fresh fruits, vegetables, eggs and meat were offset by higher prices for fish, dairy products, coffee and pork.

Lower demand and dealer discounts caused passenger car prices to continue falling, down 0.5% in July as they were in June. Cigarette prices were unchanged despite an overall 0.1% increase in tobacco products.