The producer price index fell 0.3% in June, defying forecasts that had expected the wholesale inflation measure to remain unchanged for the month.
The Bureau of Labor Statistics released the figures on Wednesday, marking a second consecutive day of encouraging inflation data for financial markets and policymakers.
The Dow Jones consensus estimate had predicted no movement in the final demand cost measure, making the monthly decline a notable surprise to the downside.
On an annual basis, the PPI still reflects a 5.5% inflation rate, though the May reading was revised sharply lower from an initially reported 1.1% increase to just 0.6%.
Energy costs drove much of the monthly decline, with goods prices posting a 1.4% drop, the biggest single-month fall since July 2022, as energy slumped 6.4%.
Gasoline prices tumbled 12% within the goods category, accounting for roughly two-thirds of the overall monthly decrease in wholesale costs.
Oil prices eased following a brief pause in tensions between the United States and Iran, which helped drag energy-linked components of the index sharply lower.
Excluding food and energy, the core PPI rose 0.2%, slightly below the 0.3% increase analysts had forecast, while core PPI less trade services climbed just 0.1%.
The release followed Tuesday’s consumer price index report, which showed a surprise 0.4% monthly decline in June, pulling the annual consumer inflation rate down to 3.5%.
That CPI drop was the largest single-month decline since April 2020, just after the Covid pandemic was declared, and core consumer inflation slipped to 2.6% with prices flat for the month.
Services prices within the PPI rose 0.2% for June, supported by a 0.4% increase in trade services, providing some offset to the sharp fall in goods costs.
“The Fed’s war with inflation isn’t over by any means,” said Chris Rupkey, chief economist at Fwdbonds, “… but there is good news from the front and the odds of Fed rate hikes should continue to recede as inflation at the factory level is trending lower, and producers will not be passing on their higher costs to the consumer level as much as we previously thought.”
Stocks traded higher on Wednesday morning as traders also scaled back expectations for further interest rate increases, with a September hike now a 50-50 proposition according to the CME Group’s FedWatch gauge.
Fed Chairman Kevin Warsh told House lawmakers on Tuesday that June’s price decline did not represent a “mission accomplished” moment for inflation, signalling continued caution from the central bank.
Both the consumer and producer price indexes feed into the Federal Reserve’s preferred inflation gauge, the personal consumption expenditures price index, which is due from the Commerce Department later this month.