The producer price index (PPI), which measures prices received by producers before they reach consumers, fell 0.3% in June from the previous month, the Bureau of Labor Statistics said Wednesday. Economists surveyed by Dow Jones had expected prices to remain unchanged.
A sharp drop in energy prices pulled US wholesale inflation lower in June, giving relief after years of high price pressures. But the improvement may not last, with renewed tensions involving Iran threatening to push oil and gasoline costs higher again.
The decline was the biggest since April 2025 and marked a sharp turnaround from May, when wholesale prices rose 0.6%. The May figure was revised down from an initially reported 1.1% increase. Compared with a year earlier, producer prices were up 5.5% in June, slowing from a 6% annual increase in May.
Energy prices drive the decline
Lower energy costs were the biggest reason for the fall in wholesale prices. Prices for final demand goods dropped 1.4% in June, the largest monthly decline since July 2022.
Energy prices fell 6.4%, while food prices declined 0.6%. Gasoline prices alone plunged 12% and accounted for about two-thirds of the monthly fall in goods prices.
The decline came as oil prices eased during a brief pause in tensions between the US and Iran. However, the outlook has become more uncertain as hostilities involving Iran intensify, raising concerns that energy prices could climb again.
Gasoline prices, despite their sharp monthly fall in June, were still nearly 43% higher than a year earlier.
“There’s no near-term pressure on the Fed, but oil is in the driver’s seat over the longer term,” said David Russell, global head of market strategy at the online brokerage TradeStation told AP. “Energy saved the day in June, but that might become ancient history if the Strait of Hormuz doesn’t open soon.’’
Core wholesale inflation remains high
When volatile food and energy prices are excluded, core producer prices rose 0.2% in June from May, slightly below expectations for a 0.3% increase.
Core wholesale prices were up 4.7% from a year earlier. Another measure that excludes food, energy and trade services rose just 0.1% for the month and was 5.1% higher than a year ago.
Services prices moved in the opposite direction from goods, rising 0.2% in June. The increase was partly driven by a 0.4% rise in trade services.
Consumer inflation also cooled sharply
The wholesale inflation report came a day after government data showed an unexpectedly sharp decline in consumer prices.
The consumer price index fell 0.4% in June from May, the biggest monthly drop since April 2020. The annual inflation rate slowed to 3.5% from 4.2% in May.
Core consumer prices, which exclude food and energy, were unchanged for the month, while the annual core inflation rate eased to 2.6%.
The back-to-back declines in consumer and producer inflation suggest that price pressures in the US economy cooled significantly in June. However, inflation remains above the Federal Reserve’s 2% target.
Fed may get some breathing room
The softer inflation numbers could reduce pressure on the Federal Reserve to raise interest rates in the near term. Markets still expect the central bank to approve another rate increase this year, possibly as soon as September.
Fed Chair Kevin Warsh, in his first appearance before Congress since taking the role on May 22, said Tuesday that the central bank has “no tolerance for persistently elevated inflation.’’ He also warned that the June decline in prices did not represent a “mission accomplished” moment in the fight against inflation.
“The Fed’s war with inflation isn’t over by any means,” said Chris Rupkey, chief economist at Fwdbonds, ”… but there is good news from the front and the odds of Fed rate hikes should continue to recede as inflation at the factory level is trending lower, and producers will not be passing on their higher costs to the consumer level as much as we previously thought.”
Focus now turns to the Fed’s preferred inflation gauge
Both the consumer price index and the producer price index feed into the calculation of the Federal Reserve’s preferred inflation measure, the personal consumption expenditures price index.
The PCE inflation report for June is due later this month from the Commerce Department. In May, headline PCE inflation stood at 4.1%, while core PCE inflation was 3.4%.
The latest consumer and producer price data could pull those readings lower. But the direction of oil prices, particularly as tensions around Iran and the Strait of Hormuz continue, could determine whether June’s inflation relief lasts.
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