Wholesale prices in the United States showed signs of deceleration in June, indicating a continued easing of inflationary pressures. This development comes amidst a streak of interest rate hikes by the Federal Reserve, aimed at curbing inflation.
As per the government's producer price index, which measures inflation before it reaches consumers, prices rose by a mere 0.1% last month compared to June 2022. This represents the smallest increase since August 2020. Additionally, prices rose by the same 0.1% from May to June, following a 0.4% decline from April to May.
The producer price index issued on July 13 reflects the prices charged by manufacturers, farmers, and wholesalers and can provide early indications of future consumer inflation trends.
A recent report by the government stated that consumer prices in June rose by just 3% over the previous 12 months, marking the slowest pace since early 2021. The decline in inflation was driven by reduced prices for gasoline, airline fares, used cars, and groceries. Year-over-year consumer price inflation has been steadily decreasing 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 a year ago. The year-over-year gain in core wholesale prices was the smallest since January 2021.
Gasoline prices, however, saw a 3.4% increase from May to June, offsetting the decrease in prices of other goods, such as iron and steel scrap.
The Federal Reserve has been implementing interest rate hikes to combat inflation, raising its benchmark rate 10 times since March 2022. These actions have resulted in higher borrowing costs for mortgages, auto loans, credit cards, and business borrowing, thereby slowing the economy and cooling the job market to some extent. Despite these measures, the economy has managed to defy predictions of an inevitable recession.
Despite the recent inflation data showing better-than-expected results, the Federal Reserve is widely expected to raise its benchmark rate in its upcoming meeting in two weeks. However, given the consistent slowdown in price increases, the central bank may choose to delay an anticipated rate hike in September if inflation continues to cool.
Rubeela Farooqi, the chief U.S. economist at High-Frequency Economics, noted that wholesale price increases are already below the Fed's desired 2% year-over-year inflation rate. While progress has been slower on the consumer side, Farooqi expects consumer prices to further decelerate throughout this year and into 2024.
Farooqi does not anticipate that the June inflation numbers will significantly impact the outcome of the upcoming Federal Reserve meeting, where most economists, including herself, expect a quarter-point hike in the benchmark rate. This decision will have implications for various consumer and business loans across the economy.
Comments (0)