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U.S. Producer Prices Unexpectedly Dip 0.1% In July

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Reflecting a drop in prices for services, the Labor Department released a report on Thursday showing an unexpected decrease in U.S. producer prices in the month of July.

The Labor Department said its producer price index for final demand edged down by 0.1 percent in July after inching up by 0.1 percent in June. Economists had expected another 0.1 percent uptick.

The report said food prices came in unchanged in July after climbing by 0.6 percent in June, while energy prices fell by 0.3 percent after sliding by 0.5 percent in the previous month.

Excluding food and energy prices, core producer prices still dipped by 0.1 percent in July after creeping up by 0.1 percent in June. Core prices had been expected to rise by 0.2 percent.

The drop in prices was primarily due to the decrease in prices for services, which fell by 0.2 percent in July after rising by 0.2 percent in June.

The Labor Department said most of the decline in service prices can be traced to a 0.5 percent drop in prices for final demand trade services.

Prices for final demand transportation and warehousing services also slid by 0.8 percent, while the index for final demand services less trade, transportation, and warehousing rose by 0.2 percent.

With the monthly drop in prices, the annual rate of growth in producer prices slowed to 1.9 percent in July from 2.0 percent in June.

The annual rate of growth in core producer prices also decelerated to 1.8 percent in July from 1.9 percent in the previous month.

Chris Low, chief economist at FTN Financial noted year-over-year producer price inflation peaked in April, while year-over-year consumer price inflation peaked in February.

"Normally it's the other way around, wholesale price weakness leads consumer price weakness," Low said. "The unusual reversal suggests this year's bout of disinflation is demand driven, reflecting consumers' reticence to spend after last year's sharp slowdown in wage and salary income and decline in savings."

On Friday, the Labor Department is scheduled to release its more closely watched report on consumer prices in the month of July. Consumer prices are expected to rise by 0.2 percent.

by RTT Staff Writer

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