US producer prices fell 0.3% in June as gasoline costs dropped

US wholesale prices fell 0.3% in June, the Bureau of Labor Statistics reported Wednesday, as a sharp drop in gasoline pulled goods costs lower. The decline surprised economists, with the Dow Jones consensus estimate having called for the final-demand producer price index to be unchanged.

The producer price index, which tracks prices received by domestic producers for goods and services, was still up 5.5% from a year earlier. The BLS also revised May’s monthly increase down to 0.6% from an initially reported 1.1%, reducing the apparent strength of prior wholesale inflation.

Core producer prices, excluding food and energy, rose 0.2% in June, below the Dow Jones estimate for a 0.3% gain. A narrower measure that also strips out trade services increased 0.1% on the month and was 5.1% higher than a year earlier.

Energy drove the monthly decline

The goods component of final demand fell 1.4% in June, its largest monthly decline since July 2022, according to the BLS. Energy prices dropped 6.4%, while final-demand food prices fell 0.6%.

Gasoline was the largest single factor behind the decline in goods prices. The BLS said gasoline prices fell 12% and accounted for about two-thirds of the overall monthly decrease in the goods index.

The fall in energy costs followed a period of lower oil prices during a brief pause in tensions between the United States and Iran. Energy prices can move quickly through producer indexes because fuel is both a finished product and an input cost for transport, manufacturing and distribution.

Services prices moved in the opposite direction, rising 0.2% in June. The increase was helped by a 0.4% gain in trade services, a category that measures changes in margins received by wholesalers and retailers rather than the selling price of a physical product.

Data arrive before the Fed’s preferred inflation measure

The producer price report followed Tuesday’s BLS release on consumer prices, which showed the consumer price index fell 0.4% in June. That brought annual consumer inflation to 3.5%, and marked the largest monthly decline since April 2020, shortly after the Covid pandemic was declared.

Core consumer inflation, excluding food and energy, eased to 2.6% after prices were unchanged for the month, according to the BLS.

Both the consumer and producer price indexes feed into the Commerce Department’s personal consumption expenditures price index, the inflation gauge most closely followed by Federal Reserve policymakers. For May, the PCE index showed headline inflation at 4.1% and core inflation at 3.4%. The next PCE release is due later this month.

Inflation remains above the Federal Reserve’s 2% goal, even after the softer June readings. Chris Rupkey, chief economist at Fwdbonds, said the data suggest less pressure from producers to pass higher costs to consumers, while cautioning that the Fed’s fight against inflation is not finished.

Market expectations still pointed to a possible Federal Reserve rate increase this year, potentially as soon as September. Fed Chairman Kevin Warsh told House lawmakers Tuesday that the June drop in prices did not amount to a “mission accomplished” moment on inflation.

This story draws on original reporting from CNBC.