US producer prices increased slightly more than expected in June amid a rise in the cost of services, but that did not change expectations that the Federal Reserve could start cutting interest rates in September.
Details of the components in the producer-price report, especially healthcare services, that go into the calculation of the key inflation measures tracked by the US central bank for monetary policy were mostly favorable last month.
Taken with the softer readings in the consumer price report, economists anticipated benign readings in the personal consumption expenditures (PCE) inflation in June.
"There does not appear to be much inflation pressure percolating on the factory floors that might affect the prices that consumers pay at the shops and malls," Reuters quoted Christopher Rupkey, chief economist at FWDBONDS, as saying.
The producer price index for final demand rose 0.2% last month after being unchanged in May, the Labor Department's Bureau of Labor Statistics said on Friday. Economists polled by Reuters had forecast the PPI nudging up 0.1%.
In the 12 months through June, the PPI increased 2.6%. That was the largest year-on-year gain since March 2023 and followed a 2.4% advance in May.
A 0.6% increase in the price of services accounted for the rise in the PPI. Services rose 0.3% in May. They were boosted by a 1.9% surge in margins for trade services, which measure changes in margins received by wholesalers and retailers, mostly reflecting a 3.7% advance in machinery and vehicle wholesaling.
But the cost of transportation and warehousing services fell 0.4%. Portfolio management fees rebounded 1.0%, not fully reversing a 0.8% drop in May. Airline fares increased 1.1%, leaving the bulk of the 3.9% decline in May intact. The cost of hotel and motel rooms slipped 0.2%. Readings were even tamer for the series used in the calculation of medical services PCE. The cost of doctor services dropped 0.4%.
"The big news is that, after applying our own seasonal adjustment, PPI hospital prices increased by only 0.1% in June and the massive 1.3% surge in May was revised down to a 0.6% gain," said Paul Ashworth, chief North America economist at Capital Economics.
Portfolio management fees, healthcare, hotel and motel accommodation and airline fares are among components that go into the calculation of the PCE price indexes, the inflation measures tracked by the Fed for its 2% target.
PCE inflation was forecast to have edged up 0.1% in June after being unchanged in May. Estimates for the core PCE price index converged around a 0.15% rise. Core inflation ticked up 0.1% in May. Both PCE and core inflation were seen increasing 2.5% year-on-year in June after rising 2.6% in May.
In light of the downward revision to PPI hospital prices, economists expected the May monthly and year-on-year inflation figures to be revised lower.
"Disinflation has gotten back on track over the last two months," said Stephen Juneau, an economist at Bank of America Securities.
Stocks on Wall Street traded higher. The dollar slipped against a basket of currencies. U.S. Treasury prices rose.
