Wholesale prices were unchanged in July but remained 4.7% above year-ago levels, the Bureau of Labor Statistics reported Aug. 12. The Producer Price Index for final demand showed services ticking up 0.2% for the month while goods prices fell 0.7%, the BLS said.
The decline in goods prices was driven largely by commodity relief, which partially offset persistent cost increases in the service sector.
The 4.7% annual rate of wholesale inflation runs nearly 1.3 percentage points above the July Consumer Price Index reading of 3.4%, a spread economists are watching closely. When producer prices consistently exceed consumer prices, it typically means businesses are either absorbing cost increases at the expense of their margins or have not yet passed them along to customers.
For American consumers, the gap suggests that retail price pressures may not have fully abated. Small businesses in particular face difficulty absorbing elevated input costs without raising prices, according to prior surveys by the National Federation of Independent Business.
The flat monthly reading offers some near-term relief, indicating that the pace of wholesale price increases paused in July even as the annual rate remains elevated. Goods deflation, driven partly by declining energy commodity prices, provided the primary offset.
Services inflation, however, continues to prove sticky. The 0.2% monthly increase in services PPI reflects ongoing cost pressure in transportation, warehousing, and professional services categories that employ millions of Americans.
The PPI data, combined with the July CPI report, will inform Federal Reserve deliberations ahead of the central bank’s September meeting. Fed officials have repeatedly stated they need to see sustained evidence that inflation is returning to the 2% target before adjusting the federal funds rate.