Producer Prices Surprise in July

Contrary to economists’ expectations of a small gain, inflation in prices received by producers (prior to sales to consumers) fell 0.4% in July, nearly erasing June’s 0.5% increase. According to the latest Producer Price Index (PPI) release by the Bureau of Labor Statistics, the decline was a result of nearly identical drops in prices of services and goods of 0.3% and 0.4%, respectively (more weight is placed on services, in line with its share of the economy relative to goods).  Final demand prices for core goods (i.e. goods excluding food and energy) were unchanged.

The July decrease can be traced to margins for final demand trade services, which fell 1.3%. Trade indexes measure changes in margins received by wholesalers and retailers. Nearly 60% of the decrease in prices for final demand services is attributable to margins for apparel, jewelry, footwear, and accessories retailing, which fell 6%. A 1% decline in energy prices dragged the index for goods prices lower, marking the first time energy prices had fallen in the PPI since February.

Softwood lumber prices rose 0.4% in July after a flat June. The U.S. dollar remains strong, making Canadian softwood lumber cheaper to import and alleviating building cost burdens to some extent.

CDUSX fx rate

Gypsum prices rose by 0.1% after sliding nearly 3% over the prior two months. The price of ready-mix concrete rose nearly a full percentage point and OSB prices continued trending upward, albeit at a moderate pace of 0.2%.

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