Inflation Nearly Stopped Altogether In June Producer Price Index

(July 13,2023-Zachary Halaschak)

Inflation as measured by the producer price index fell to a 0.1% annual rate in June, a surprising result showing prices have nearly stopped increasing altogether after huge increases over the past few years.

On a month-to-month basis, the wholesale price index increased by 0.1%, the Bureau of Economic Analysis reported Thursday morning.

The drop-off in year-over-year inflation is a sign that inflationary pressures are abating in the face of the Federal Reserve’s campaign to slow economywide spending by hiking interest rates. The PPI's headline number is now the lowest it has been since September 2020.

Inflation has plummeted from over 11% a year ago to nearly zero this past month.

"In short, PPI inflation surprised to the downside and decelerated further to end the second quarter," said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. "Headline producer prices are well below 2%, and annual changes in the core and core-core indexes are moving towards target."

Core inflation, which strips out movement in volatile food, energy, and transportation, is still running above headline PPI inflation. It clocked in at a 2.6% annual rate in June.

Thursday’s PPI report comes a day after the June release of the consumer price index, which is even more closely watched. Inflation in the CPI fell to a 3% annual rate, a decline of a whole percentage point from the preceding month.

The annual CPI inflation rate has been trending down since peaking last June and is now running at the lowest level since March 2021, right around when the country’s inflationary woes began.

The country’s inflation has been gradually cooling in response to the Fed’s aggressive interest rate hikes. The Fed has raised rates by a large degree since last March, with the target rate now 5% to 5.25%.

The Fed paused rate-hiking last month for the first time since its tightening cycle began, although officials were keen to indicate that the pause was expected to be temporary and penciled in the possibility of two more rate revisions by the end of the year.

President Joe Biden has touted the recent declines in inflation as proof that his “Bidenomics” agenda has been working, although Republican critics contend that Biden shoulders some of the blame for inflation taking off in the first place, given large infusions of federal spending at the start of his presidency.

Biden has sought to emphasize the bright spots in the economy, namely the robust labor market, which, while starting to show some signs of softening, has defied expectations in the face of the Fed’s tightening.

The economy added 209,000 jobs in June, the Bureau of Labor Statistics reported last week. While still strong, that was below forecast expectations of 225,000, and it was the first report in months that came in below the consensus prediction. It was also the slowest pace of job growth since December 2020.