Producer Prices Come Blistering Hot, PPI Final Demand Surges Most Since September 2012

With market participants expecting US inflation to remain subdued for a long time, moments ago the BLS poured cold water of disinflationary expectations when June Producer Prices came blistering hot, rising 0.5% over the prior month, well above the 0.3% expected, and the highest sequential jump since September of 2012.

On an annual basis Final demand ex food, energy rose 1.3% y/y vs est. up 1%.

 

Core PPI, exluding food and energy jumped by a whopping 0.4%, far above the consensus estimate of just a 0.1% rise.

In June, the advance in the final demand index was led by prices for final demand services, which rose  0.4 percent. The index for final demand goods advanced 0.8 percent.

Prices for final demand less foods, energy, and trade services rose 0.3 percent in June after declining 0.1 percent in May. For the 12 months ended in June, the index for final demand less foods, energy, and trade services increased 0.9 percent.

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More details from the report::

Final demand services: The index for final demand services advanced 0.4 percent in June, the third consecutive rise. The broad-based June increase was led by prices for final demand services less trade, transportation, and warehousing, which also moved up 0.4 percent. The indexes for final demand trade services and for final demand transportation and warehousing services rose 0.7 percent and 0.5 percent, respectively. (Trade indexes measure changes in margins received by wholesalers and retailers.)

 

Product detail: A major factor in the increase in prices for final demand services was the index for services related to securities brokerage and dealing, which rose 7.7 percent. The indexes for automotive fuels and lubricants retailing; machinery, equipment, parts, and supplies wholesaling; traveler accommodation services; airline passenger services; and health, beauty, and optical goods retailing also increased. In contrast, margins for apparel, footwear, and accessories retailing declined 2.6 percent. The indexes for long-distance motor carrying and residential real estate loans (partial) also fell.

 

Final demand goods: The index for final demand goods advanced 0.8 percent in June, the largest rise since a 1.2-percent jump in May 2015. Over three-quarters of the June increase can be traced to prices for final demand energy, which climbed 4.1 percent. The index for final demand foods moved up 0.9 percent. Prices for final demand goods less foods and energy were unchanged.

 

Product detail: Nearly half of the increase in the index for final demand goods is attributable to gasoline prices, which climbed 9.9 percent. Prices for meats, jet fuel, electric power, home heating oil, and cigarettes also moved higher. Conversely, the index for chicken eggs dropped 29.9 percent. Prices for carbon steel scrap and residential natural gas also decreased.

So as a leading indicator to consumer inflation, does the blistering June PPI mean that the Fed will soon have no choice but to hike soon? With numerous Fed speaker still on the docket, we expect to get some additional information in the coming hours as to whether the all time highs in the market, coupled with the amazing June jobs report and now the surging inflation will be enough to force the Fed to flip-flop once again.