U.S. Producer Prices Unexpectedly Post Broad-Based Rebound in July

• 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.