Wholesale Inflation Comes in Lower Than Expected

Wholesale inflation dropped last month as gas prices reversed some of their Iran war spike and other costs also cooled, a sign that consumer inflation could grind lower in the months ahead. The Labor Department's producer price index—which captures inflation before it reaches consumers—rose 4.7% in July from a year ago, down from a much larger 5.5% increase in June, the AP reports. On a monthly basis, wholesale prices were unchanged from June to July, after they ticked down 0.1% the previous month. E conomists polled by Dow Jones had expected an 0.2% increase, reports CNBC.

The figures follow the government's consumer price inflation report, released Wednesday, which also showed a modest cooling last month. Still, consumer prices have risen faster than wages for the past four months, underscoring the challenges many Americans have affording necessities such as rent and utilities. If prices continue to outpace wages, many consumers may be forced to dial back their spending in the coming months.

• Excluding the volatile food and energy categories, core wholesale inflation dropped to 4.2% in July compared with a year earlier, down from 4.7% in June. On a monthly basis, core prices rose 0.2%, down from 0.4% from May to June. After falling in early July, gas prices then rose later that month and in early August, threatening to push inflation back up when August figures are reported next month.
• "The soft (producer prices) reading for July points to reduced inflationary pressure for businesses in coming months," said Ben Ayers, senior economist at Nationwide. "While the renewed rise in fuel costs is concerning, input costs beyond energy are cooling."

• Last month's cooling gives Federal Reserve officials more leeway to avoid a rate hike when it meets next in September. Fed officials are debating whether they should raise their key interest rate to combat inflation, or keep it unchanged in hopes that inflation continues to cool on its own.
• Wholesale prices can offer an early look at where consumer inflation might be headed. Economists also watch it because some of its components, notably healthcare and financial services, flow into the Fed's preferred inflation gauge—the personal consumption expenditures, or PCE, index. That price index will be released in about two weeks.