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Economy in Brief

U.S. Producer Prices Unexpectedly Post Broad-Based Rebound in July
by Tom Moeller  August 11, 2020

• Prices less food & energy rise after three straight monthly declines.

• Energy prices are strong while food costs slip.

• Core goods prices strengthen; services prices rebound.

Pricing power in the industrial sector improved last month. The Producer Price Index for final demand rose 0.6% (-0.4% y/y) during July following declines in four of the prior five months. A 0.3% increase had been expected in the Action Economics Forecast Survey. Underlying pricing power also improved. Producer prices excluding food & energy rose 0.5% (0.3% y/y), also following several months of decline. It was the largest increase since October 2018. A 0.1% uptick had been expected. Another measure of underlying pricing power is the PPI excluding food, beverages and trade services. It improved 0.3% in July (0.1% y/y), the same as in June.

Higher energy prices paced the PPI's increase last month with a 5.3% rise. It was the third consecutive month of strength. Gasoline prices increased 10.1% (-31.3% y/y) following a 26.3% June rise. The cost of home heating oil surged by more than one half (-8.9% y/y). The cost of electric power improved 0.7% (-1.3% y/y) after falling for two straight months, but natural gas prices fell 1.3% (-0.6% y/y).

A 0.5% decline in food prices held back the change in the PPI overall, as it added to June's 5.2% decline. Beef & veal prices fell 7.4% (-5.9% y /y) after a 44.5% June drop, and the price of pork fell 5.5% (-0.8% y/y). Oilseed prices were off 7.8% (+1.5% y/y). Fresh & dry vegetable prices fell 6.9% (-9.9% y/y). These declines were offset by higher egg prices which increased 6.2% (NSA) and strengthened one-third y/y. Fresh fruit & melons prices increased 4.6% (14.5% y/y).

Final demand goods prices less food & energy rose 0.3% last month (0.5% y/y) after a 0.1% June improvement. Prices for finished consumer goods less food & energy rose 0.3% (1.2% y/y). Core nondurable goods prices also improved 0.3% (1.7% y/y), the largest increase since February. Women's apparel prices increased 0.8% y/y and men's clothing costs rose 0.5% y/y. Durable consumer product prices improved 0.5% y/y as household appliance prices rose 2.1% y/y.

For businesses, private capital equipment prices rose 0.2% last month (1.0% y/y) after a 0.1% gain.

Services prices for final demand rebounded 0.5% in July (0.3% y/y) following a 0.3% weakening. Trade services prices rebounded 0.8% (1.2% y/y) after a 1.8% decline, as the cost of trade of finished goods rose 0.7% (1.4% y/y). A 0.8% decline (-5.5% y/y) in transportation & warehousing services prices offset the increase. Excluding these costs, trade services prices improved 0.4% (0.4% y/y) after a 0.3% rise.

The cost of construction rebounded 0.6% last month (2.1% y/y) following declines in three of the prior four months.

Intermediate product prices increased 1.5% (-3.6% y/y), following a 0.9% rise.

The PPI data can be found in Haver's USECON database. Further detail can be found in PPI and PPIR. The expectations figures are available in the AS1REPNA database.

Producer Price Index (SA, %) Jul Jun May Jul Y/Y 2019 2018 2017
Final Demand 0.6 -0.2 0.4 -0.4 1.7 2.9 2.3
   Excluding Food & Energy 0.5 -0.3 -0.1 0.3 2.1 2.6 1.9
   Excluding Food, Energy & Trade Services 0.3 0.3 0.1 0.1 2.0 2.9 2.1
   Goods 0.8 0.2 1.6 -2.0 0.4 3.4 3.4
      Foods -0.5 -5.2 6.0 0.0 1.8 0.2 1.2
      Energy 5.3 7.7 4.5 -13.5 -4.4 10.1 10.6
    Goods Excluding Food & Energy 0.3 0.1 0.0 0.5 1.4 2.5 2.2
   Services 0.5 -0.3 -0.2 0.3 2.2 2.6 1.8
      Trade Services 0.8 -1.8 -0.8 1.2 2.5 1.8 1.5
   Construction 0.6 -0.3 -0.1 2.1 4.9 4.1 2.2
Intermediate Demand - Processed Goods 1.5 0.9 0.1 -3.6 -1.4 5.4 4.7
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