The Bureau of Labor Statistics said that producer prices for final demand goods and services increased 0.4 percent in June, rebounding from the 0.2 percent decline in May. June’s higher figure stemmed largely from a sharp jump in the cost of finished energy goods, which increased 2.1 percent in the month. Middle East tensions in Iraq were largely to blame for this increase. Indeed, the cost of West Texas intermediate crude oil jumped from $99.69 per barrel on May 1 to $103.07 on June 2 to $106.07 on June 30. (The price of oil has fallen since then, closing at $100.75 a barrel yesterday.)
One of the other major drivers of price increases this year has been food; yet, the cost of finished food goods have fallen in the past two months by 0.2 percent each time. Still, food costs have risen 4.6 percent year-to-date on higher prices for meat, vegetables, dairy, and egg products. The lower costs in June reflect some easing in the price growth for those products.
Beyond food and energy, core producer prices for final demand goods increased 0.1 percent in June. The largest increases were seen in industrial chemicals, cigarettes, commercial and industrial products, construction machinery and equipment, sporting and athletic products and truck trailers. These were offset by declines in prices for jewelry, mining machinery, motor vehicle parts, railroad equipment, toys and games and travel trailers and campers, among others.
On an annual basis, producer prices for final demand goods and services rose 1.9 percent over the past 12 months. This was slightly lower than the 2.0 percent pace observed in May, but it remains higher than the 1.1 percent rate experienced in December. Meanwhile, core inflation – which excludes food and energy costs – increased 1.7 percent between June 2013 and June 2014. This suggests that producer prices have decelerated somewhat from 2.0 percent growth rate seen the month before.
In general, we have seen a pickup in costs this year, and the Fed will keep an eye on pricing pressures moving forward. Nonetheless, the decline in June has provided a welcome respite from increases seen earlier in the year.
Chad Moutray is the chief economist, National Association of Manufacturers.