WASHINGTON (AP) — Wholesale inflation dropped last month as gas prices reversed some of their Iran war spike and other costs also cooled, a sign that consumer inflation could grind lower in the months ahead.
The Labor Department’s producer price index — which captures inflation before it reaches consumers — rose 4.7% in July from a year ago, down from a much larger 5.5% increase in June. On a monthly basis, wholesale prices were unchanged from June to July, after they ticked down 0.1% the previous month.
The figures follows the government’s consumer price inflation report, released Wednesday, which also showed a modest cooling last month. Still, consumer prices have risen faster than wages for the past four months, underscoring the challenges many Americans have affording necessities such as rent and utilities. If prices continue to outpace wages, many consumers may be forced to dial back their spending in the coming months.
Excluding the volatile food and energy categories, core wholesale inflation dropped to 4.2% in July compared with a year earlier, down from 4.7% in June. On a monthly basis, core prices 0.2%, down from 0.4% from May to June.
After falling in early July, gas prices then rose later that month and in early August, threatening to push inflation back up when August figures are reported next month.
Still, last month’s cooling gives Federal Reserve officials more leeway to avoid a rate hike when it meets next in September. Fed officials are debating whether they should raise their key interest rate to combat inflation, or keep it unchanged in hopes that inflation continues to cool on its own.
Wholesale prices can offer an early look at where consumer inflation might be 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. That price index will be released later this month.
Fed officials are considering whether to hike rates after leaving them unchanged so far this year. Last week, the government said employers actually cut jobs in July, a sign of economic weakness that could discourage the central bank from raising borrowing costs.