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- Inflation is cooling at the producer level
Inflation is cooling at the producer level
But services still remain sticky
We got the PPI numbers for June today.
As a reminder:
The Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services.
Final-demand buyers include consumers, government, and foreigners, as well as domestic industries that purchase the commodity as capital investment.
Intermediate demand buyers consist of domestic industries that purchase the commodity as an input to production, excluding capital investment.
Takeaways from the report:
PPI for final demand increased by 0.1% in June driven mainly by +0.2% final demand in services. As with the CPI report, we’re services remain sticky. The ISM services also remains in expansionary territory.
Final demand for services was driven by a 5.4% increase for deposit services.
Final demand for energy increased 0.7% in June - so we’re seeing a slight increase in energy, something we also saw with the CPI report.
Intermediate demand declined during June. These are input costs so this decline should further help with CPI unless companies want to continue to keep margins elevated.
Within intermediate demand in June, the index for processed goods fell 0.6%, prices for unprocessed goods decreased 2.1%, and the index for services was unchanged.
Nearly three-quarters of the June decline in the index for unprocessed goods for intermediate demand is attributable to prices for crude petroleum, which fell 5.9%.
The bottom line:
Inflation at the producer level is cooling although we see some stickiness in services
Base effects have started to become tougher, i.e., YoY change will be measured against a lower base
We should see companies reducing pricing - this could mean lower revenues and lower margins
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