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Economy in Brief

U.S. Producer Prices Unexpectedly Surge in July
by Tom Moeller  August 12, 2021

• Service price increases continue to accelerate.

• Core goods price gain remains strong.

• Energy prices rise, but food prices fall.

The Producer Price Index for Final Demand strengthened 1.0% (7.8% y/y) in July for a second straight month. The year-to-year increase is the largest in the series history, dating back to 2009. A 0.6% rise for last month had been expected by the Action Economics Forecast Survey. The PPI excluding food and energy prices also rose 1.0% (6.2% y/y) in July for the second straight month. A 0.5% increase had been expected. The PPI less prices of food, energy and trade services rose 0.9% (6.1% y/y) following a 0.5% gain.

Strength in final demand services prices led the gain in the PPI last month with a record 1.1% increase (5.8% y/y) after rising 0.8% in June. Trade services prices surged 1.7% (6.7% y/y) after a 2.1% strengthening. Prices for final demand transportation and warehousing services rose 2.7% (11.8% y/y) after gaining 0.9% in June. Prices for services less trade, transportation, and warehousing rose 0.6% in July (4.9% y/y) after a 0.3% rise.

Prices for final demand goods increased 0.6% (11.9% y/y) in July after rising 1.2% in June. Final demand goods less foods and energy rose 1.0% (7.5% y/y) in July, about the same as during the prior three months. Core finished consumer goods prices rose 0.9% (4.3% y/y), the strongest increase since October 2008. Durable consumer goods prices improved 0.7% (5.6% y/y) following a 1.1% increase. The cost of core nondurable goods rose 0.9% (3.5% y/y) following three consecutive 0.3% gains. Capital equipment prices gained 0.8% (4.2% y/y) for the third consecutive month.

Energy prices for final demand surged 2.6% in July (35.4% y/y) following a 2.1% June rise. Gasoline prices surged 6.2% (78.0% y/y) after gaining 2.8% and 2.2% in the prior two months. The cost of home heating oil strengthened 7.2% (62.5% y/y), about the same as in the prior two months. Finished food prices declined 2.1% last month (+9.5% y/y) after a 0.8% increase. The cost of beef & veal fell 11.6% (+40.3% y/y) following a 5.6% gain. Fresh fruit & melon prices were off 4.4% (-5.1% y/y) and vegetables prices declined 2.7% (-17.3% y/y). Dairy products costs eased 0.5% (-1.6% y/y).

Construction costs increased 1.5% (4.5% y/y) in July after rising 0.7% and 0.6% in the prior two months.

Intermediate goods prices jumped 1.7% (22.9% y/y) in July after a 1.9% June surge.

The PPI data are published by the Bureau of Labor Statistics and can be found in Haver's USECON database. Further detail is contained in PPI and PPIR. The expectations figures are available in the AS1REPNA database.

Is the Economy Tight or Slack? from Esther L. George, President and CEO, Federal Reserve Bank of Kansas City is available here.

Producer Price Index (SA, %) Jul Jun May Jul Y/Y 2020 2019 2018
Final Demand 1.0 1.0 0.8 7.8 0.2 1.7 2.9
   Excluding Food & Energy 1.0 1.0 0.7 6.2 0.9 2.1 2.6
   Excluding Food, Energy & Trade Services 0.9 0.5 0.7 6.1 0.7 2.0 2.8
   Goods 0.6 1.2 1.5 11.9 -1.4 0.4 3.4
      Foods -2.1 0.8 2.6 9.5 1.3 1.9 0.2
      Energy 2.6 2.1 2.2 33.4 -12.8 -4.6 10.2
    Goods Excluding Food & Energy 1.0 1.0 1.1 7.5 0.7 1.4 2.5
   Services 1.1 0.8 0.6 5.8 0.9 2.3 2.6
      Trade Services 1.7 2.1 0.7 6.7 1.7 2.4 1.8
   Construction 1.5 0.7 0.6 4.5 2.3 5.0 4.1
Intermediate Demand - Processed Goods 1.7 1.9 2.8 22.9 -2.8 -1.4 5.3
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