Producer Prices Increase More Than Expected

The glaring, and surprising, fact is that U.S. Labor Department's producer price index (PPI) for finished goods jumped half a percentage point in June, more than their two-tenths percent increase in June and significantly more than the three-tenths percent increase many economists expected.

However, the so-called core PPI, which excludes price changes for food and fuel, rose two-tenths of a percentage point in June, exactly what economists expected and a tenth of a percent lower than May's increase.

Food posted a major price increase in June, rising 1.4% following a half-percent decline in May. Energy prices rose seven-tenths of a percentage point, nearly twice their May increase, but nowhere near April's 4% gain. These energy prices, of course, do not reflect that dramatic increase in oil prices during the past week as a result of escalating fighting in the Middle East.

At least for several months, energy prices will again be the focus for manufacturers, as they have to pay more for the petroleum that is both fuel and feedstock. But in June, there seems to have been less reason to worry. The cost of goods, including petroleum, at the first stage of production, the "crude" level, actually fell 1.7% after rising 2% in May. And the intermediate level, between crude goods and finished goods, prices rose seven-tenths of a percent in June, down significantly from their 1.1% increase in May.

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