Producer Prices Miss Forecast, Supporting Case for Dovish Fed

Services Segment Contracts, Led by Accommodation and Transportation

The services component of the PPI slipped 0.1% in June, reversing a 0.4% rise in May. The decline was driven largely by a 4.1% plunge in traveler accommodation services and softness in retail sectors such as automobile parts, airline passenger services, and deposit services. Transportation and warehousing fell 0.9%, while trade service margins were flat. Portfolio management services provided a bright spot, climbing 2.2% month-over-month.

Core PPI Holds Steady, Offering Relief on Inflationary Trends

Excluding food, energy, and trade services, core PPI was unchanged in June after a modest 0.1% gain in May. On an annual basis, this index rose 2.5%, a signal that underlying producer inflation remains contained. Intermediate demand prices—often seen as a precursor to consumer inflation—showed limited movement, with processed goods up 0.1% and services down 0.1%. Notably, natural gas for utilities spiked 12.1%, lifting certain energy-sensitive categories.

Federal Reserve Outlook: Is Cooling Inflation Enough?

The flat PPI print adds to evidence that wholesale inflation is losing momentum, complementing softer consumer inflation readings earlier in the week. While the Fed remains data-dependent, continued stability or softness in input prices could support a more dovish policy stance in the near term. Traders should monitor upcoming CPI and employment reports for confirmation.

Market Forecast: Neutral to Slightly Bullish for Bonds

June’s PPI data reinforce a neutral inflation narrative, reducing pressure on the Federal Reserve to tighten policy further. This environment supports a slight bullish tilt for Treasury markets, particularly on the short end. Equities could also benefit if rate expectations soften, though commodity-sensitive sectors may remain volatile given energy input costs.

More Information in our Economic Calendar.