WASHINGTON, Aug 13 ( ) - U.S. producer prices were unchanged in July as goods prices fell and the cost of services increased marginally, bolstering financial market expectations that the Federal Reserve could keep interest rates unchanged next month. The report from the Labor Department on Thursday followed news on Wednesday of mild consumer inflation last month. The data led most economists to also expect moderate readings in the Personal Consumption Expenditures price indexes in July.
The U.S. central bank tracks the PCE inflation measures for its 2% target. Financial markets had been pricing in a rate hike, but the odds have diminished considerably following last week's employment report showing unexpected job losses in July. The Federal Open Market Committee will get August CPI and employment reports before the September meeting.
"It's now looking far less likely that the FOMC will feel the need to hike as soon as September," said Stephen Brown, chief North America economist at Capital Economics. The flat reading in the Producer Price Index for final demand last month followed a revised 0.1% drop in June, the Labor Department's Bureau of Labor Statistics said. Economists polled by had forecast the PPI rebounding 0.2% following a previously reported 0.3% decline in June.
In the 12 months through July, the PPI increased 4.7% after advancing 5.5% in June. Most of the PPI data are collected early in the month, meaning that sharp oil price increases toward the end of July were probably not reflected in the PPI. As such, economists expected higher PPI readings in August, and some saw a rate hike this year as still on the table.
Goods prices dropped 0.7% after sliding 1.4% in June. Energy prices decreased 3.1%, with wholesale gasoline prices falling 5.7%. Food prices declined 0.9% as fresh and dry vegetables tumbled 34.9%.
Wholesale lettuce prices plunged a record 73.0% amid a cyclosporiasis outbreak, helping to more than offset a 37.0% surge in egg prices. Grain prices shot up 14.8%. Excluding the volatile food and energy components, goods prices rose 0.1%, lifted by a 1.3% advance in tires as well as a 1.5% increase in iron and steel scrap, and 4.2% surge in transformers and power regulators.
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