Wholesale prices in the United States experienced a further deceleration last month, indicating that inflationary pressures are easing amidst the Federal Reserve’s series of interest rate hikes.
According to the government’s producer price index, which measures inflation prior to reaching consumers, there was a mere 0.1% increase in prices last month compared to June 2022. This marks the smallest increase since August 2020. Additionally, prices rose by an identical 0.1% from May to June, following a 0.4% decline from April to May.
The current annual pace of wholesale inflation stands at 2.6%, aligning with previous estimates.
The Labor Department’s index, released on Thursday, reflects prices charged by manufacturers, farmers, and wholesalers, providing an early indication of the speed at which consumer inflation will rise.
On Wednesday, the government reported that consumer prices in June rose by just 3% over the past 12 months, representing the mildest pace since early 2021. The slowdown was primarily driven by declining prices for gasoline, airline fares, used cars, and groceries. Consumer price inflation on a year-over-year basis has consistently decreased since reaching a four-decade high of 9.1% in June 2022.
Excluding the volatile categories of food and energy, core wholesale inflation increased by 0.1% from May to June and by 2.4% compared to the same period the previous year. This marks the smallest year-over-year gain in core wholesale prices since January 2021.
While gasoline prices rose by 3.4% from May to June, offsetting the decline in prices for other goods like iron and steel scrap, the Federal Reserve has been actively raising its benchmark interest rate in an effort to curb inflation. Since March 2022, policymakers have implemented 10 rate hikes, leading to higher borrowing costs for mortgages, auto loans, credit cards, and various forms of business borrowing. This has resulted in a somewhat slower economy and a cooling job market. However, thus far, the economy has managed to defy expectations of an inevitable recession.
Despite the recent better-than-expected inflation data, it is highly likely that the Federal Reserve will raise its benchmark rate during its upcoming meeting in two weeks. However, if price increases continue to slow down, the central bank might consider postponing another anticipated rate hike in September.
Rubeela Farooqi, the chief U.S. economist at High Frequency Economics, pointed out that wholesale price increases are already below the Fed’s desired 2% year-over-year inflation rate.
In a research note, Farooqi cautioned, “On the consumer side, progress has been slower,” but she anticipates further deceleration in consumer prices throughout this year and into 2024.
Farooqi also mentioned that she does not expect the June inflation figures to alter the outcome of the upcoming Federal Reserve meeting, where, like most economists, she expects a quarter-point increase in the central bank’s benchmark rate. This rate has implications for numerous consumer and business loans across the economy.