Producer Prices Increased in July

This would mark a definitive drop from last month’s strong gains of 0.4 percent on the headline PPI and 0.3 percent on PPI less food and energy.

The U.S. Labor Department said on Friday producer prices grew 0.2 percent last month, stronger than the 0.1 percent rise forecast by economists polled by Reuters. Import prices were down 0.9% during July. The core rate has risen 0.9% over the last 12 months.

In the 12 months through July, the PPI fell 0.8 per cent after declining 0.7 per cent in June.

The consumer price index fell 0.2 percent year-over-year in July, following a 0.1 percent drop in the previous month. The dollar pared losses against a basket of currencies.

Eloy Alonso/ReutersProducer prices rose more than expected in July. Over the longer term, food prices have drifted lower, providing some relief from higher costs seen at the beginning of 2014.

The central bank’s preferred inflation gauge, the price index for personal consumption expenditures, has undershot a 2% target for more than three years. Food prices rose 0.6 percent in June.

The Federal Reserve for some time now has said that before increasing the record low interest rates which have been in place since late 2008, it needs to be “reasonably confident” that the inflation is moving back to its pre set goal of two percent.

“It adds to the steady drum-beat of solid indicators that suggest the economy is getting off to a much better start in the second half of the year and further increases the odds towards a September rate hike by the Fed”, said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. Egg prices, which had been surging because of the avian flu outbreak, reversed and fell 24.2 percent.

Gasoline prices rose 1.5 percent but the cost of natural gas, home heating oil and jet fuel all declined.

S&P 500 futures were weaker by 0.25 percent in front of the PPI release.