To add insult to injury, in July, the US Producer Price Index (PPI) for final demand increased a staggering 3.3% year-over-year. That welcome news came courtesy of the numbers released on Thursday by the US Bureau of Labor Statistics. This increase represents a significant upside acceleration in inflation pressures, coming in over economists’ expectations for a 2.5% rise. Monthly data was equally optimistic, with the PPI increasing 0.9% from June to July.
That’s not the only news — the general PPI just shot up. In July, the core PPI—minus those volatile food and energy prices—was up 0.9% month-over-month too. Year-on-year, the core PPI surged to 3.7%, from 2.6% in June, reflecting a more persistent inflationary trend in the economy. The data paint a stark picture of a new inflationary regime taking root, indicating that inflation is getting stickier.
The Bureau’s PPI figures indicate that the annual increase in July’s PPI outpaced June’s recorded growth of 2.4%. This trend is symptomatic of increasing costs faced by producers. These costs will likely increasingly be borne directly by consumers, putting pressure on economic health and consumers’ spending priorities.
The market reaction to the PPI data was swift and strong. The US Dollar Index shot up as producer inflation numbers hit the markets. This increase is a testament to the robust investor confidence in the greenback, despite the uptick in producer prices. The index had a big day today, increasing 0.25%, or up to 98.04. It still refuses to budge below the key psychological level of 98.00.
This historic jump is clear evidence of growing inflationary pressures that might require a new response from the Federal Reserve’s monetary policy makers. As the central bank continues to navigate its path regarding interest rates, these indicators may prompt discussions on tightening measures to combat inflation.
With the overall and core PPI rising, inflation is getting stickier. This trend should begin to weigh on overall economic growth as producers make adjustments to account for higher production costs. Analysts will be monitoring future PPI reports closely to gauge whether this trend continues and how it may impact consumer prices and overall economic conditions.