PPI Inflation Could Hit Lowest Level Since September 2020, Reflecting Easing Inflationary Pressures

Following the lower-than-expected consumer price inflation data released Wednesday, there may be more positive news coming on the inflation front with the Thursday release U.S. producer price index (PPI) report.

Economists predict a year-over-year increase of 0.4% for the PPI index in June, down from 1.1% in May, marking the lowest level since September 2020 and the twelfth consecutive month of declining producer inflation.

The monthly producer inflation is expected to show a 0.2% gain, consistent with May’s figures. Core PPI inflation is seen falling from 2.8% to 2.6% annually, the lowest since February 2021.

The upcoming release of the producer price index will provide additional insights into inflation trends, which will have ramifications for monetary policy choices and market expectations about future rate hikes by the Federal Reserve.

Chart: US PPI Seen Falling To Nearly 3-Year Lows

June PPI Inflation Preview: What You Need To Know Before The Print

• Consumer inflation in June decreased to 3% year-on-year, posting a full percentage drop from May, and the lowest reading since March 2021. Core inflation, excluding food and energy, also declined to 4.8% year-on-year, falling short of expectations of 5%.

• This alleviating inflationary pressure is a result of the manufacturing sector’s dismal activity data, where prices paid have dropped significantly. According to the ISM Manufacturing PMI, June witnessed the fastest rate of contraction in the manufacturing sector since May 2020, with the activity gauge down from 46.9 in May to 46 in June. The subindex for prices paid registered a dramatic fall into contraction, down from 44.2 to 41.8 in June.
  
  Read also: US Manufacturing Crisis Worsens: Activity Shrinks For 8th Straight Month To Lowest In 3 Years
  
• Manufacturers surveyed by the ISM indicated the presence of “a buyers’ market, as sellers are concerned about filling order books to support their backlogs.” Only one of the top six manufacturing industries (Computer and Electronic Products) reported price increases in June. Eighty-nine percent of companies reported the same or lower prices in June, compared to 85% in May.

• In the month of June, the Bloomberg Commodity Index, as tracked by the iShares Bloomberg Roll Select Commodity Strategy ETF CMDY, rose 2.6%, after falling as much as 6% in May. Compared to the June 2022’s levels the commodity gauge was 15% lower in June 2023.
  
• Oil prices, tracked by the United States Oil Fund ETF USO, increased by 3.7% in June 2023 but remained 33% below June 2022 levels.
  
• Freight costs, as monitored by the Baltic Dry Index, widely regarded as the most popular global shipping costs index, rose 11% in June after plummeting 39% in May, but remained over 50% lower than June 2022 levels.

Read also: 5 Commodity ETFs To Watch When PPI Inflation Data Drops Wednesday

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