Having been resurgent for the last few months, US Producer Price inflation was expected to slow significantly in July and it did, with Headline Final Demand PPI rose just 0.1% MoM (+0.2% exp) which pulled the YoY PPI down from +2.7% to +2.2%…

Energy prices picked up MoM while Services prices tumbled by the most since March 2023…

Final demand goods: Prices for final demand goods rose 0.6% in July, the largest advance since a 1.1- percent jump in February. Nearly 60 percent of the broad-based increase in July can be traced to the index for final demand energy, which moved up 1.9%. Prices for final demand goods less foods and energy and for final demand foods also rose, 0.2 percent and 0.6 percent, respectively.

Product detail: A quarter of the July rise in the index for final demand goods is attributable to a 2.8-percent advance in prices for gasoline. The indexes for diesel fuel, meats, jet fuel, fresh fruits and melons, and basic organic chemicals also increased. Conversely, prices for electric power decreased 1.1 percent. The indexes for fresh and dry vegetables and for steel mill products also moved down.

Final demand services: Prices for final demand services fell 0.2 percent in July, the largest decrease since moving down 0.2 percent in March 2023. The July decline can be traced to the index for final demand trade services, which dropped 1.3 percent. (Trade indexes measure changes in margins received by wholesalers and retailers.) In contrast, prices for final demand services less trade, transportation, and warehousing and for final demand transportation and warehousing services rose 0.3 percent and 0.4 percent, respectively.

Product detail: Leading the July decline in prices for final demand services, margins for machinery and vehicle wholesaling decreased 4.1 percent. The indexes for food and alcohol retailing, automobiles retailing (partial), automotive fuels and lubricants retailing, desktop and portable device application software publishing, and physician care also fell. Conversely, prices for portfolio management advanced 2.3 percent. The indexes for chemicals and allied products wholesaling and for truck transportation of freight also rose.

We would expect portfolio management fees to drop next month as stocks were slammed…

Core (Ex-Food and Energy) was unchanged MoM and plunged from +3.0% to +2.4% YoY…

However, ex-Trade-Services, PPI increased to +3.3% YoY…

On a year-over-year basis, Trade Service has only posted a bigger drop in December 2023 in at least the past six years. It’s a relevant category for consumer prices and reaffirms the more benign read-across to CPI tomorrow.

For stocks, the read-through to profit margins is less welcome and may stymie gains, as companies are feeling the squeeze as they eat the difference between CPI and PPI…

Not exactly a good sign for the economy.