Wholesale price increases in the United States eased in July, suggesting that inflation pressures are further cooling as the Federal Reserve moves closer to cutting interest rates, likely beginning next month.
The Labor Department reported Tuesday that its producer price index — which tracks inflation before it reaches consumers — rose 0.1% from June to July. That was down from a 0.2% rise a month earlier. And compared with a year earlier, prices were up 2.2% in July. That was the smallest such rise since March and was down from a 2.7% year-over-year increase in June.
The July wholesale figures reflect a broad and steady slowdown in price increases, which peaked at a four-decade high in mid-2022 but are now moving toward the Fed’s 2% inflation target. On Wednesday, the Labor Department will release the most well-known inflation measure, the consumer price index.
Tuesday’s report showed that prices in the nation’s vast service sector fell 0.2% last month, the biggest drop since March 2023. Goods prices rose 0.6%, largely because gasoline prices jumped 2.8% from June to July.
Excluding food and energy prices, which tend to fluctuate sharply from month to month, so-called core wholesale prices were unchanged from June and were up 2.4% from July 2023. The increases were milder than forecasters had expected.
The producer price index can provide an early sign of where consumer inflation is 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.
Paul Ashworth, chief North America economist at Capital Economics, said that the prices that feed into PCE were overall “very encouraging.” He noted, in particular, mild increases in wholesale prices at doctors’ offices and hospitals. As a result, Ashworth scaled back his forecast for core PCE inflation in July to 1.4% from 1.8%.
Forecasters have estimated that Wednesday’s CPI report will show that consumer prices rose 0.2% from June to July, after falling 0.1% the previous month, and 3% from July 2023, according to a survey by the data firm FactSet.
As Americans prepare to vote in the November presidential election, many still remain unhappy with consumer prices, which are nearly 19% higher than were before the inflationary surge began in the spring of 2021. Many have assigned blame to President Joe Biden, though it’s unclear whether they will hold Vice President Kamala Harris responsible as she seeks the presidency.
In its fight against high inflation, the Fed raised its benchmark interest rate 11 times in 2022 and 2023, taking it to a 23-year high. From 9.1% in June 2022, year-over-year consumer price inflation has eased to 3%.
The U.S. jobs report for July, which was much weaker than expected, reinforced the widespread expectation that the Fed’s policymakers will begin cutting rates when they meet in mid-September to try to support the economy. The jobs report showed that the unemployment rate rose for a fourth straight month to 4.3%, still healthy by historical standards but the highest level since October 2021.
Over time, a succession of rate cuts by the Fed would likely lead to lower borrowing costs across the economy — for mortgages, auto loans, and credit cards as well as business borrowing and could also boost stock prices.
Of all the laborers critical to the smooth flow of goods around the planet, unionized dockworkers find themselves among those with the most power and best pay.
Why it matters: Port workers along the East and Gulf coast are threatening to strike in October — alarmingly close to Election Day.
As Peter Goodman of the New York Times writes in his new book, "How the World Ran Out of Everything," the unions that represent port workers, particularly on the West Coast, have masterfully leveraged their ability to grind the supply chain to a halt.
- Full-time registered longshore workers on the West Coast, which had its own share of unrest last year, earned an average of nearly $200,000 a year in 2022, according to an estimate from the shippers — some of the best-paid industrial workers in the world.
- Their numbers have dwindled as the industry moves to automation. That's been a sticking point in negotiations, as we previously explained.
The current drama is playing out on the East Coast with the International Longshoremen's Association, the largest maritime union in North America.
- More than half of the cargo shipped to the U.S. from around the world comes through these ports.
- At this point, a strike is still unlikely, says Moses Kopmar of Moody's Ratings.
Zoom out: The drama comes at a time of increased turmoil in the shipping industry.
- Shipping rates have been driven up this year not only by drought conditions at the Panama Canal but also by the ongoing crisis in the Red Sea, which has diverted container ships away from the Suez Canal.
Zoom in: Talks are stymied between the union, which represents about 85,000 workers across 36 ports, and the U.S. Maritime Alliance, which represents employers including terminal operators and global shipping companies.
- Companies are already starting to either divert shipments away from the East Coast or, if possible, move up shipments early to avoid any autumn surprises, says Jess Dankert, vice president for supply chain at the Retail Industry Leaders Association.
- Meanwhile, the negotiating drama is playing out through dueling public statements.
The union is saying it won't work past the Sept. 30 expiration of its contract. "[W]e are very far apart, particularly on the economic issues. In fact, we are at an impasse," per a statement from union president Harold Daggett a few days ago.
Observers tell Axios that wages are the big sticking point. East Coast workers want a better deal than the one their peer union on the West Coast negotiated last year.
- Acting Labor Secretary Julie Su ultimately helped hammer out that deal. Observers say the East Coast union doesn't want any help.
- The White House is monitoring the situation but so far letting negotiations play out on their own.
Even if a strike happens, disruptions won't come close to the crisis at the ports brought on by the pandemic.
The union is planning a big meeting early next month to pull together its "final contract demands" and prepare to strike, it said in a statement.