The PPI Release: What Did Producer Prices Tell Us?

The US July PPI release gave markets another piece of evidence about inflation. It was the week's second important price report, following CPI.

What was reported?

Headline PPI rose 4.7% year on year, below the previous 5.5% reading and the 4.9% consensus forecast, reaching its lowest level since March. Prices were unchanged month on month, below the expected 0.2% increase. Core PPI rose 0.2% on the month, also below the expected 0.3%. According to the original article, falling energy prices weighed on goods prices, while services remained sticky.

How can producer-price cooling affect consumers?

PPI measures selling prices received by producers of goods and services; CPI measures prices paid by consumers. Price changes in production and distribution may reach consumers through procurement costs and business pricing. Whether businesses raise prices also depends on demand, competition and profit margins. Pass-through is neither fixed nor necessarily simultaneous.

The reported PPI inflation rate was 4.7%, compared with CPI inflation of 3.4%. Their coverage and weights differ. The gap cannot be read directly as costs yet to reach consumers or used to calculate lost business profits. Assessing pass-through requires more detailed industry-level price information.

Why also watch BEI?

The original article recorded the ten-year breakeven inflation rate at 2.29% after the PPI release. PPI describes price changes that have already occurred on the producer side; BEI reflects market pricing of inflation over the next ten years. They answer different questions.

One month of below-expected PPI can add evidence that price pressures are easing. It cannot establish a trend by itself or determine when the Fed will cut rates. CPI, retail sales and changes in inflation pricing need to be considered together to judge whether the cooling persists.