TMGM Group reports that U.S. July PPI data rose less than expected, highlighting a continued easing of inflation pressures. Data released on Tuesday showed that the PPI index, representing final demand, rose by 0.1% from the previous month. The median forecast of economists surveyed by the agency predicted a 0.2% increase. Additionally, compared to a year ago, the PPI rose by 2.2%. Excluding the volatile food and energy categories, the core PPI for July was 2.4%, unchanged from the previous month, marking the most modest reading in four months. After the data was released, gold briefly surged by $6 but quickly gave back all gains.
The PPI report shows a 0.2% decline in service costs, reflecting lower profit margins for machinery and automobile wholesalers. Goods prices increased by 0.6%, the largest gain since February, mainly due to rising gasoline prices. The PPI report includes categories used to calculate the Fed's preferred inflation measure, the PCE price index, which overall remained mild. In these categories, costs for physician care and airfares decreased, while outpatient hospital fees remained flat. Portfolio management service prices rose by 2.3%. The July PCE price index will be released later this month.
Currently, with inflation pressures easing coupled with the July unemployment rate soaring to a nearly three-year high of 4.3%, markets are increasingly worried about a weakening labor market. The Fed risks falling behind the curve and is beginning to price in a rate cut starting in September, with the possibility of a 50 basis point reduction.
The more closely watched CPI data will be released on Wednesday, with expectations that the month-on-month growth rate for July CPI will accelerate to 0.2%, and the core CPI month-on-month growth rate will also accelerate to 0.2%.
Market Analysis:
The U.S. July PPI's increase was below expectations, causing a significant drop in the daily level of the dollar index. The rise in commodity costs was offset by a decline in service prices, indicating continued easing of inflation. The easing of inflation and cooling labor market have led financial markets to expect the Fed to begin an easing cycle in September. Following the surge in the July unemployment rate to a nearly three-year high of 4.3%, the Fed is increasingly concerned about the weakness in the labor market.
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