The Bureau of Labor Statistics reported that producer prices for finished goods rose 0.8 percent in June, building on the 0.5 percent gains of May. As such, we have seen a bit of a rebound in pricing pressures, particularly as energy costs have risen. Prices for finished energy goods were up 1.3 percent in May and 2.9 percent in June, but to be fair, these increases followed several months of declines. At the same time, food costs have also risen in the past two months, up 0.6 percent and 0.2 percent, respectively. The largest increases in June stemmed from higher meat prices.
On an annualized basis, producer prices for finished goods have grown 2.5 percent. This is the fastest pace in raw material pricing pressures since March 2012. Nonetheless, core inflation still remains in-check. When you exclude energy and food from the analysis, core producer prices increased 0.2 percent in June and 1.6 percent year-over-year. This is below the Federal Open Market Committee (FOMC) of the Federal Reserve Board’s stated target of 2 percent or less. As such, the FOMC should continue to feel free to pursue its “highly accommodative” policies. That will be true whether or not the Fed “tapers” its asset purchases later this year.
For manufacturers, producer prices were up just 0.1 percent in June or 1.4 percent over the past 12 months. This represents a pickup in pricing pressures from May, when the annualized pace was just 0.3 percent. Still, it would still be in the acceptable range for many manufacturers, at least for now. The fastest monthly growth was seen in the paper (up 0.7 percent), food (up 0.6 percent), textile products (up 0.5 percent), leather products (up 0.5 percent), and beverage and tobacco (up 0.4 percent) manufacturing sectors. In contrast, the largest decline was seen in the paper products manufacturing sector, down 0.8 percent in June but still up 6.7 percent for the year.