US producer inflation cools in July, helped by energy costs

US producer inflation declined sharply in July, falling by 4.7% compared to a year ago, according to government figures released on Thursday. This marks a significant slowdown from the 5.5% increase recorded in June. The drop was primarily driven by a 3.1% decrease in energy prices, which followed a surge earlier in the year due to the ongoing conflict in the Middle East.

The Producer Price Index (PPI), which measures the average change over time in the selling prices received by domestic producers for their output, experienced a 4.7% increase from a year ago. However, the month-on-month change was flat, indicating a cooling trend in inflation. Energy prices, which dropped by 3.1% from the previous month, were a key factor in this slowdown. While this decline is smaller than the drop seen in June, it suggests the energy shock caused by the war on Iran is beginning to ease.

Despite this progress, a long-term resolution remains elusive, raising concerns that inflation could persist. The global energy costs have skyrocketed since the US and Israel launched strikes against Iran in late February, leading Tehran to block access to the strategic Strait of Hormuz. This chokepoint is crucial for international energy transport.

As a result, gasoline prices at US pumps have risen, putting additional pressure on businesses' transportation costs. In July, over half of the decrease in goods costs was attributable to lower gasoline prices, as reported by the labor department. Additionally, the indexes for fresh and dry vegetables, diesel fuel, jet fuel, residual fuels, and thermoplastic resins and materials all decreased, as detailed in the report.