The producer price index excluding food and energy increased 4.7% from a year earlier, according to Bureau of Labor Statistics data out Wednesday, below the median estimate in a Bloomberg survey. Overall PPI inflation slowed in large part due to a 12% drop in gasoline prices.
The report showed broad-based cooling in several key categories that had been boosted in recent months by the fallout from the war. That likely gives the Federal Reserve more room to postpone an interest-rate increase — especially after a separate report Tuesday showed consumer prices were also tame in June. However, with the Middle East conflict heating up again, the reprieve may prove short-lived.
US stock index futures rose and Treasury yields fell as investors scaled back bets on a Fed rate hike in July after the report.
Fed Chairman Kevin Warsh, in testimony before Congress on Tuesday, warned against declaring “mission accomplished” following the favorable report on consumer prices.
Energy prices fell 6.4% in June from the prior month, according to Wednesday’s figures, while transportation and warehousing prices also declined. Even so, trucking freight rates have been elevated due to rising fuel costs and a shrinking pool of drivers amid President Donald Trump’s immigration crackdown.
Food prices, meanwhile, fell for the first time in three months. They have generally been climbing this year thanks to a combination of factors including bad weather, the war and tariffs.
Several components of the PPI are also of particular interest to the Fed because they feed into its preferred inflation gauge, the personal consumption expenditures price index. Those categories were mixed: Airfares jumped 1.9%, but portfolio management fees rose at a much slower pace than in May.
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The Bureau of Economic Analysis is scheduled to release June PCE price data, along with income and spending figures, on July 30.
A measure of inflation pressures earlier in the production process — prices of processed goods for intermediate demand excluding food and energy — rose 0.6%, the least since the start of the year. Prices of plastic resins and materials, a key input for a vast array of consumer goods, fell for the first time in 2026.
The report also showed some cooling in two other emerging sources of inflation pressures this year: data centers and defense production. The prices of electronic components and accessories fell for a second month, and prices associated with government purchases for defense declined 2.2%.
Details in the PPI report on wholesale and retail trade services margins have also been under scrutiny for clues on the extent to which companies are absorbing tariff-related costs or passing them on to customers. In June, margins rebounded somewhat following a large decline in May.
While the Supreme Court struck down many of Trump’s tariffs earlier this year, the administration is seeking other ways to levy imports. The US has also recently decided it won’t renew a long-term trade deal with Canada and Mexico, opting for annual reviews instead, which could fuel additional uncertainty for firms in the months to come.
In a separate report on Wednesday, the Federal Reserve Bank of New York’s general business conditions index of factory activity picked up in July as new orders and shipments increased and a gauge of employment rose to the highest level since December 2022. A measure of prices paid eased but remained elevated, and the outlook for prices paid and received declined.
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