Higher energy prices helped to somewhat fan the fires of inflation in June, at least at the wholesale level, as the Producer Price Index jumped by 0.8% last month. That increase, the most in nine months, easily topped expectations of a 0.5% price rise, and the May gain, which also was 0.5%. The big catalyst for this sharp increase was energy prices, which soared by 2.9% for the month, more than doubling the May gain of 1.3%. Energy prices had fallen notably in March and April, following a 3.2% surge in February.
Such movements underscore the inherent volatility of this price category, and is a key reason behind the government's parallel issuance of the so-called core rate of producer price change. That metric backs out the volatile food and energy components. The core PPI rose by 0.2% last month, suggesting a slight increase in inflation from May when that number had risen by 0.2%. The consensus forecast for the core PPI in June had been 0.1%.
It should be noted that food prices, which also move all over the place, rose by a modest 0.2% in June. That atypically subdued change contrasts with May's sharp 0.6% gain in food prices and April's steep 0.8% drop.
As to the core PPI, it remains a very stable variable, having risen by either 0.1% or 0.2% every month so far this year. In fact, one has to go back to last July for a core PPI result that is outside the range of no change to a 0.2% increase. In that month, the core PPI rose by 0.5%--a clear outlier.
Of course, Americans do shop for food, fill their cars, and heat and cool their homes, so to fully exclude the headline inflation number is unrealistic. Overall, this report suggests a slight pickup in inflation, even though there were subdued costs on a range of goods.
Meanwhile, the higher prices extended beyond energy, to autos and meats. On balance, though, inflation remains tame, having risen by 2.5% in the past year. With oil prices up in more recent weeks, it is likely that the headline inflation number will be up for July, although even a large increase this month in the composite index would probably not be a game changer, nor would it influence the Federal Reserve to shift monetary gears any sooner than it now contemplates doing.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.