Economic Report: Wholesale inflation jumps to six-year high, PPI shows
The numbers: The wholesale cost of goods and services rose in June at the highest yearly rate in almost seven years, reflecting broad inflationary pressures in a fast-growing U.S. economy.
The producer price index rose 0.3% June, the Labor Department said Wednesday. That’s a tick above the MarketWatch forecast.
The 12-month rate of wholesale inflation, meanwhile, climbed to 3.4% from 3.1%, marking the highest perch since the waning months of 2011.
Somewhat less worrisome, the yearly rate of core wholesale inflation stood at 2.7% and was several notches below a recent high.
The core rate strips out the volatile components of food, energy and trade margins and is seen as a better indicator of inflationary trends. The core rate rose 0.3% in June.
What happened: The wholesale cost of services increased 0.4% while prices for goods increased just 0.1%.
Energy prices only rose slightly after a string of sizable gains. Rising oil prices have played a big part in pushing up wholesale inflation.
The cost of transportation such as trucking, rail and ocean-bound shipping continued to increase, however. Companies are paying more to ship goods with the economy so strong and shortages of labor developing.
The specter of oncoming U.S. tariffs and retaliatory measures did not appear to have much effect. The cost of some products such as rolled steel increases, but there was little evidence of widespread disruption.
Big picture: Inflation in the U.S. has risen sharply in the past year owing to rising oil prices, higher rents and medical costs and a muscle-bound economy chafing at its restraints.
The level of inflation is still relatively low historically and the PPI is not an especially accurate predictor of future trends. Most economists tend to discount its readings.
Still, if prices keep rising the Federal Reserve will feel compelled to raise interest rates more aggressively. That would raise the cost of borrowing for businesses and consumers.
Complicating matters are growing tensions over trade and the imposition of tariffs that could put further upward pressure on prices.
What they are saying?: “The big picture takeaway is that costs are rising at the wholesale level and while businesses will eat some of them, they are likely to press the issue on prices, especially given robust demand,” said Stephen Stanley, chief economist at Amherst Pierpont Securities.
Market reaction: The Dow Jones Industrial Average DJIA, +0.58% and the S&P 500 SPX, +0.35% were set to open lower in Wednesday trades after President Trump readied new tariffs on China and assailed German policies at a tense NATO meeting in Europe. The stock market has been gyrating up and down in the past few months amid worries about a widening trade war. Both indexes have receded from record highs set earlier in the year.
The 10-year Treasury yield TMUBMUSD10Y, -0.26% slipped to 2.86%. After reaching 3.1% last month, the yield has also fallen in response to growing trade tensions.