On broad-based weakness, the PPI for final demand unexpectedly fell 0.1 percent in July – extending the recent decline in the year-over-year rate. This only heightens anticipation for tomorrow’s CPI update.
Alert: Chemical Spill
Marking the first monthly decline since August 2016, the PPI for final demand unexpectedly contracted in July. Price declines were broad-based with lower readings in energy and services, while wholesale food prices remained flat.
Services accounted for over 80 percent of the headline’s decline, with about 60 percent attributable to a 5.8 percent drop in margins for chemicals and allied products wholesaling.
Outlook Remains Tame
Our favorite measure of core producer prices, ex-energy, food and trade services, was flat on the month, taking the year-overyear rate down modestly to 1.9 percent. It is important to remember the PPI data can be volatile on a monthly basis. That said, today’s miss heightens the focus on the July CPI report. From our view, the health of economic fundamentals continues to point to a firming inflation environment in H2.