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June Producer Prices Log Surprise Drop as Energy Costs Decrease

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June Producer Prices Log Surprise Drop as Energy Costs Decrease

US producer prices unexpectedly dropped on a monthly basis in June amid a steep decline in the cost of energy products, official data showed Wednesday.

The producer price index decreased 0.3% on a seasonally adjusted basis last month, compared with May's downwardly revised 0.6% gain, the Bureau of Labor Statistics reported. Wall Street expected no change for June, according to a Bloomberg survey.

Wholesale goods prices fell 1.4% last month, the largest drop since July 2022, as prices for energy dropped 6.4%. Gasoline prices slumped 12%, according to government data.

US retail gasoline prices averaged $3.89 per gallon Wednesday, compared with $4.065 a month ago, according to data from AAA, a travel organization that tracks fuel prices in the country. Crude prices plunged in May and June, but have rallied this month as tensions between the US and Iran escalated, potentially putting their preliminary peace deal at risk.

"We expect to see another weak reading for the July PPI, even though global oil prices have moved higher in the past week," Oxford Economics US Economist Grace Zwemmer said in remarks e-mailed toWednesday.

Core producer prices, which exclude the volatile food and energy components, rose 0.2% in June, official data showed.

"Part of the strength in core inflation represented a slight bounce back in trade services costs," Zwemmer said. "Still, energy being off their peak should help ease some of the pressure on core inflation in the coming months by reversing some of the recent gains in transportation and warehousing prices."

On Tuesday, official data showed US consumer prices decreased last month for the first time in more than six years amid lower energy costs.

"Core goods inflation will remain sticky this year, thanks to (artificial intelligence) buildout, pass-through from the oil price shock, and lingering tariff effects," Zwemmer said Wednesday. "However, with services disinflation still in the pipeline, and a labor market that is far from overheating, we think the Federal Reserve will remain on hold for the rest of 2026."

The probability that the Fed will leave its benchmark lending rate unchanged later this month rose to nearly 90% Wednesday from 84% Tuesday, according to the CME FedWatch tool. The odds of a quarter-percentage-point increase fell to 10% from 16%.

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