US producer prices rose slightly in June, while the cost of goods declined

U.S. producer prices rose slightly in June as the cost of energy and other goods fell for a second straight month, offsetting an acceleration in services, leading to the smallest annual increase in producer inflation in nearly 2-1/2 years.

The Labor Department said on Friday its producer price index for final demand edged up 0.1% last month after a similar gain in May. In the 12 months through June, the PPI rose 1.7%, the smallest gain since January 2017, slowing further from a 1.8% increase in May.

Economists polled by Reuters had forecast the PPI unchanged in June and increasing 1.6% on a year-on-year basis.

Underlying producer prices slowed last month, a sign that overall inflation could remain moderate despite strong gains in prices of most consumer goods and services in June.

Excluding the volatile food, energy and trade services components, producer prices were unchanged in June after rising 0.4% for two straight months. The so-called core PPI increased 2.1% in the 12 months through June after advancing 2.3% in May.

Low inflation and growing risks to the economy from a trade war between the United States and China, and slowing global growth are likely to see the Federal Reserve cutting interest rates this month for the first time in a decade.

Fed Chairman Jerome Powell on Wednesday told lawmakers the U.S. central bank would “act as appropriate” to protect the economy against these risks.

The Fed, which has a 2% inflation target, tracks the core personal consumption expenditures (PCE) price index for monetary policy. The core PCE price index increased 1.6% year-on-year in May and has undershot its target this year.

In June, wholesale energy prices fell 3.1% after slipping 1.0% in the prior month. Goods prices decreased 0.4% last month after declining 0.2% in May. A 5.0% drop in gasoline prices accounted for nearly 60% of the decline in the cost of goods last month.

Wholesale food prices rebounded 0.6% in June. Core goods prices were unchanged for three straight months. The cost of services increased 0.4% in June, the most since October 2018, after rising 0.3% in May. Services were boosted by an increase in margins received by wholesalers and retailers.

The cost of healthcare services rose 0.2% last month, matching May’s gain. Those healthcare costs feed into the core PCE price index.