The Bureau of Labor Statistics reported that producer prices for finished goods were unchanged in July. This follows 0.5 percent and 0.8 percent gains in May and June, respectively. Higher energy prices were largely behind the increases in the producer price index (PPI), with finished energy goods prices up 1.3 percent and 2.9 percent in those two months in turn. In July, energy costs were off 0.2 percent, which is a welcome respite.
With that said, producer prices for crude goods were up 1.2 percent, with higher crude petroleum costs being the main contributor (up 10.6 percent). This is consistent with the recent rise in West Texas intermediate crude oil costs, which have risen from an average of $93.80 a barrel in June to $104.61 in July. The cost is currently over $106 per barrel. This suggests that that producer prices for finished goods should increase in the coming months as those energy costs work their way through the production process.
Overall inflation continues to be very modest, currently 2.1 percent at the year-over-year rate. When you exclude food and energy costs from the analysis, the annual rate of core inflation was just 1.2 percent in July, below the 1.6 pace of June. This is below the key threshold of 2 percent, which is desired by the Federal Reserve Board. As such, at least for now, pricing pressures appear to be in-check.
This is true for manufacturers, as well. Input costs were down 0.2 percent in July, with raw material prices up 1.5 percent over the course of the past 12 months. Manufacturing raw material costs have accelerated somewhat since May, when the annualized pace was just 0.3 percent, but they remain in the acceptable range for the most part. In July, the largest swings in prices were seen in the leather and allied products (up 0.6 percent), chemicals (down 0.5 percent), petroleum and coal products (down 0.7 percent), primary metals (down 0.5 percent), and wood products (down 1.0 percent) sectors.
Chad Moutray is the chief economist, National Association of Manufacturers.