The Producer Price Index (PPI) report released today became the second consecutive indication of easing inflationary pressure in the United States, following yesterday's Consumer Price Index (CPI) data. This is an important development. While the CPI report pointed to slower price growth at the consumer level, the PPI report showed that price pressures are also easing at the production stage, reducing the risk that higher production costs will continue to be passed on to consumers.
According to the published data, headline PPI unexpectedly fell by 0.3% month-on-month in June after an upwardly revised 0.6% increase in the previous month. It was the first negative monthly reading since September of last year. Most analysts had expected the index to remain unchanged at 0.0%. On an annual basis, headline PPI slowed to 5.5% after reaching a three-year high of 6.0%. This figure also came in below expectations, as economists had forecast an increase to 6.2%.
The primary reason for such a sharp slowdown in headline PPI was the decline in energy prices, which fell by 6.4%, including a 12% drop in gasoline prices. Lower food prices also contributed to the overall disinflationary trend.
However, the core PPI, which excludes the most volatile components, remains the more important indicator. On a monthly basis, core PPI increased by just 0.2%, while most analysts had expected a stronger 0.4% increase. Moreover, the alternative measure excluding not only food and energy but also trade services—the so-called supercore PPI—rose by only 0.1%, indicating broad-based easing in producer price pressures. On an annual basis, core PPI slowed to 4.7% in June from 4.9% in May, well below the consensus forecast of 5.2%. This marked the second consecutive monthly slowdown.
Today's PPI report should be viewed alongside the June CPI data, as together these releases present a consistent picture of broadening disinflation.
June's CPI report reflected easing inflation at the consumer level. More importantly, the key signal was not merely the decline in headline inflation—largely driven by lower energy prices—but the unexpected slowdown in core inflation. This suggests that price growth is beginning to ease in the most persistent components of the consumer basket.
Today's PPI report effectively confirmed that signal from the producers' perspective. It indicates that businesses are becoming less inclined to pass higher production costs on to consumers through higher selling prices.
This is precisely why the two inflation reports reinforce one another. If only CPI had slowed, the decline could have been attributed primarily to lower gasoline prices. Conversely, if only the PPI had weakened, uncertainty would have remained regarding how quickly that trend would reach consumers. Instead, inflation is now showing signs of easing simultaneously at both stages of the pricing chain: producer price pressures are weakening first, followed by slower price growth at the consumer level. Most importantly, both reports point to slower core inflation. For the Federal Reserve, this is a much more meaningful signal than movements in headline inflation, as core measures provide a more reliable indication of underlying inflation trends.
Taken together, the June CPI and PPI reports suggest that inflationary pressures across the U.S. economy are easing on a broader basis rather than merely reacting to temporary fluctuations in energy prices.
It is also worth noting that the PPI is traditionally viewed as a leading indicator for the Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's preferred measure of inflation. Therefore, the combination of weaker CPI and softer PPI data increases the likelihood that June's core PCE will also confirm the continuation of the disinflationary trend. Ultimately, this indicator is likely to play the decisive role in shaping the Federal Reserve's future policy decisions.
The June PPI report added further pressure on the U.S. dollar, which had already weakened following the release of the June CPI data. This combination of fundamental factors continues to support EUR/USD buyers, who have managed to keep the pair within the 1.14 price range, trading between the middle and upper Bollinger Bands on the daily chart (1.1410–1.1470). The medium-term outlook continues to favor the bulls as long as the pair remains above 1.1410. At the same time, 1.1470 remains the nearest upward barrier for buyers. A sustained breakout above this level would open the way toward the 1.1500–1.1530 level. However, the current fundamental and technical backdrop does not yet provide sufficient justification for such a scenario.
