U.S. Producer Prices Soar in July

Daily Forex Fundamentals | Written by RBC Financial Group | Aug 19 08 13:52 GMT |

Producer prices were up 1.2% in July, double the 0.6% expected in financial markets, but down from the 1.8% rise recorded in June. Energy prices did contribute to some of the upward pressure, rising 3.1% in the month. The bigger surprise was the 0.7% spike in the core measure. Market expectations had been for core prices to be up only by a trend 0.2%. On a year-over-year basis, prices are up 9.8% overall with the core measure up 3.5%.

Going into the producer price report, expectations were for a significant slowing in the monthly price increase from the 1.8% recorded in June. This was largely based on indications that gasoline price increases had leveled off in July after surging in past months. This morning's release provided some confirmation of this trend, with gasoline prices actually falling a minimal 0.2% after rising 9% and 9.3% in June and May, respectively.

The overall energy component rose 3.1%, reflecting large gains in heating oil (+3.7%) and natural gas (+8.8%). However, most of the upward surprise in prices was in the core component, which jumped 0.7% following gains of 0.2% in the previous two months. Upward pressure was evident in capital equipment (+0.8%), passenger cars (+1.4%) and pharmaceutical products (+0.7%).

The jump in core producer prices will keep the Fed wary that the earlier strong gains in energy prices, which have sent the overall measure up almost 10% during the year, are starting to have an upward impact on inflationary expectations. However, the producer price series can be volatile month to month and the central bank will likely need to see these prices pressures being sustained.

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The statements and statistics contained herein have been prepared by the Economics Department of RBC Financial Group based on information from sources considered to be reliable. We make no representation or warranty, express or implied, as to its accuracy or completeness. This report is for the information of investors and business persons and does not constitute an offer to sell or a solicitation to buy securities.