U.S. July PPI holds at 0.0%, below 0.2% forecast; core measure rises 0.4%

U.S. final-demand producer prices were unchanged in July, undershooting the 0.2% Dow Jones consensus. The June reading was revised to a 0.1% decline from the initially reported 0.3% drop. Stock-index futures remained positive after the release and Treasury yields moved lower, according to CNBC market data.

The Bureau of Labor Statistics release showed a 4.7% increase in the headline index from a year earlier. The index excluding food, energy and trade services rose 0.4% in July after a 0.1% gain in June, and it also stood 4.7% higher over 12 months. A separate core measure excluding food and energy increased 0.2%, below the 0.3% consensus cited by CNBC.

The flat headline reading resulted from opposing components. Final-demand services advanced 0.2%, while final-demand goods fell 0.7%. Energy prices declined 3.1% and food prices dropped 0.9%; within energy, the gasoline index decreased 5.7%. Goods excluding food and energy increased 0.1%, so the decline was concentrated in volatile inputs rather than spread evenly across manufactured products.

Services carried the firmer underlying signal. Prices excluding trade, transportation and warehousing rose 0.6%. Portfolio-management fees increased 6.5%, while transportation and warehousing services fell 1.8% and trade-service margins declined 0.1%. The difference between falling energy goods and firmer service categories explains why the headline figure was softer than the 0.4% core measure that excludes food, energy and trade.

The report arrived one day after July CPI rose 0.1% month over month and 3.4% from a year earlier. Core CPI increased 0.2% for the month and 2.5% over 12 months. Together, the two reports reduced immediate inflation pressure without bringing the headline producer-price rate close to the Federal Reserve's 2% objective. CNBC reported that traders lowered the probability of a September rate increase after the PPI release.

The next checkpoints are the Fed's September 15-16 meeting and the August inflation reports. Investors will need to separate the 5.7% gasoline decline from the 0.6% increase in services excluding trade, transportation and warehousing. A continuation of lower energy prices would restrain headline inflation, while persistent service increases would keep the policy debate focused on underlying pressure.

Not investment advice. Verify all figures with primary sources before acting.