- Chad Moutray, chief economist at the National Association of Manufacturers
US producer prices climbed for a third consecutive month in July, but inflation pressures remained weak amid lower oil prices and a strong US Dollar. The Labor Department reported its producer price index for final demand edged higher 0.2% last month after rising 0.4% in June. Core prices, which strip out volatile energy and food components, were up 0.3% in July. However, in the 12 months through July, the PPI dropped 0.8% after decreasing 0.7% in June. It was the sixth straight 12-month decline in the index. Producer prices and other inflation gauges have broadly fell over the past year against the backdrop of cheaper oil, a stronger Greenback and weak global demand. Oil prices started plunging sharply last year due to rising supplies. The US Dollar has strengthened due to weakness overseas and moves by global central banks to stimulate economies. Most recently, Beijing devalued the Yuan, which will make Chinese goods cheaper in the US.
This week's CPI data will be even more important in assessing the underlying price pressures. For now however, most of the economic data supports the case for a September hike. The FED is looking for inflation to firm gradually as it considers when to raise short-term interest rates, which have been near zero since December 2008. Fed officials have signalled they could start hiking rates as early as September if the world's number one economy continues to show signs of steady growth.
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