Wholesale inflation beats forecasts in June on falling gas prices

Wholesale inflation cooled in June more than economists had forecast, as energy prices that have surged since the start of the Iran war in late February abated last month.

Supply-chain inflation tracked by the producer price index (PPI) rose 5.5% last month, the U.S. Bureau of Labor Statistics (BLS) reported Wednesday, reflecting a 0.3% monthly decline from the downwardly revised 0.6% growth in May.

The BLS had previously reported a 1.1% spike in May, fueling 6.5% annual growth. June’s retreat was the largest decline in more than a year, supported by a 1.4% decrease in goods prices, the largest drop since July 2022.

Economists polled by Reuters had projected no change in PPI over the month, while economists surveyed by The Wall Street Journal expected the same.

After spiking gasoline and diesel costs had sent inflation readings higher over the past few months, June’s 12% decline in gasoline prices accounted for around two-thirds of the overall decline in PPI.

So-called “core” PPI, which excludes volatile food, energy and trade services prices, rose 0.1% over the month to land 5.1% higher than a year ago, matching May’s pace.

While the BLS’s consumer price index (CPI) for June, updated on Tuesday, also showed cooler than forecast inflation last month, it remains uncertain how long the reprieve in fuel costs may last amid renewed hostilities between the U.S. and Iran in July.

The PPI offers forward-looking signals on upcoming price changes in the consumer price index (CPI), though not on a one-to-one basis.

Nevertheless, the round of soft inflation readings for June buy Federal Reserve officials time in weighing whether to raise the federal funds rate to head off higher inflation, especially as unemployment and job gains remained resilient. The extent to which higher borrowing costs could ease energy supply pressures remains unclear.

Policymakers at the U.S. central bank have adopted an increasingly hawkish tone as the Iran war has progressed and inflationary impacts from the energy supply shock has amplified upward price pressures attributable to tariffs, AI spending and the federal deficit.

June PPI numbers, while softening some of the spike the previous month, ultimately indicate that inflation pressures remain far from resolved for policymakers, as the flat core PPI reading signals price hikes remain entrenched in the supply chain.

Delivering semiannual testimony to the Senate Banking Committee on Wednesday, Warsh underscored his commitment to returning inflation to the Fed’s stated 2% target, which inflation has exceeded for more than five years.