Producer Prices July 2015

Prices paid by wholesalers and producers increased 0.2 percent in July according to the Bureau of Labor Statistics.  This uptick in the Producer Price Index for final demand (PPI) follows June’s increase of 0.4 percent.  Year-over-year, prices at this level deflated 0.8 percent, a steeper decline than a month earlier when the tally fell 0.7 percent.  Stripping out food and energy leaves the core measure of PPI, and this less volatile version was up 0.3 percent in the period and just 0.6 percent versus a year earlier.
Prices paid for services accelerated while goods deflated in the period.  Final stage services jumped 0.4 percent in the period (the largest monthly increase since October 2014) and accounted for all of the headline increase.  Their counterparts, goods, deflated 0.1 percent in the period.  Price changes for goods and services versus a year ago live on the opposite sides of zero as well.  Final demand services are only 0.6 percent more expensive versus July of 2014 and goods are 3.7 percent cheaper than in the same period.
Earlier stage pricing resonates with the final demand narrative; prices for goods are falling while services cost a bit more.  Processed goods for intermediate demand fell 0.2 percent, due entirely to energy.  Unprocessed goods dropped 2.9 percent in the period; once again, energy played a significant role in the decline, falling 6.2 percent.  The early stage of services moved up 0.2 percent during July and is up just 1.1 percent from a year ago.
For all the chatter about the Federal Reserve raising the interest rate banks charge one another for overnight loans, the PPI data is not suggesting the move is imperative.  This indicator is not showing signs of worrisome inflation pressures.  Of course, there are other measures of prices, but they are not demonstrating a substantial increase in costs either.  (by C. Cox)