Producer Prices Punch 0.9% Higher in July, Surpassing Consensus Estimates | SchiffGold

Upstream price pressures roared back in July, according to Thursday’s Producer Price Index (PPI) release from the Bureau of Labor Statistics. The headline PPI for final demand leapt 0.9 percent after a flat reading in June. Year-over-year, producer prices are now 3.3 percent higher, the largest 12-month increase since February. The data landed just 2 days after core Consumer Price Index (CPI) rose 0.3 percent, jolting investors who had begun to hope the inflation fight was nearly over. Not coincidentally, gold touched $3,365 an ounce on Wednesday, underscoring renewed appetite for hard-asset insurance.

Source: BLS

Roughly three-quarters of July’s advance came from the services side of the ledger, where final demand prices jumped 1.1 percent. Trade services margins surged 2.0 percent, powered by a 3.8 percent spike in machinery and equipment wholesaling—evidence that price pressures are migrating from raw commodities into the broader supply chain. Goods weren’t spared either: final demand goods rose 0.7 percent, and core PPI (stripping out food, energy, and trade) climbed 0.6 percent. That core gauge now sits 2.8 percent above year-ago levels, a worrisome trend given the Federal Reserve’s stated 2 percent goal.

Food costs delivered an unwelcome surprise. Final demand foods advanced 1.4 percent, led by a staggering 38.9 percent jump in fresh and dry vegetables, a single line item that accounted for one-quarter of July’s entire goods increase. Gasoline prices did fall 1.8 percent, yet diesel fuel, jet fuel, meats, and even eggs moved higher—hardly comforting for trucking fleets or family breakfast tables. At the intermediate level, processed goods rose 0.8 percent and unprocessed goods 1.8 percent. Diesel fuel alone soared 11.8 percent, responsible for more than half the processed-goods pop, while raw milk shot up 9.1 percent.

Even the oft-ignored “pipeline” measures flashed orange. The stage-4 intermediate demand index—prices businesses pay for inputs destined for final sale—rose 0.8 percent in July and is now up 2.6 percent year on year. Hospital outpatient care and furniture retailing saw modest price relief, but those declines were easily overwhelmed by broader gains. In short, neither supply-chain snarls nor energy volatility have fully burned off, and monetary policy’s lagged effects are still flowing through the industrial bloodstream.

If July’s report is a harbinger, policymakers may soon face an unenviable choice: tighten further and risk recession, or ease off and watch inflation re-ignite. Either way, the PPI’s latest print suggests the cost-push dragon is far from slain, and prudent savers may want more than promises to protect their purchasing power.

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