US June PPI Lower Than Expected Across the Board, Further Evidence of Cooling Inflation, July Rate Hike Expectations Plummet

TradingKey - On July 15, Eastern Time, data released by the U.S. Bureau of Labor Statistics showed that the U.S. Producer Price Index (PPI) in June rose 5.5% year-on-year, lower than the market expectation of 6.2% and the previous value of 6.5%. On a month-on-month basis, the PPI for June fell by 0.3%, compared with market expectations of remaining unchanged and a previous increase of 1.1%. The core PPI, which excludes food and energy, rose 4.7% year-on-year, lower than the expected 5.1% and the previous value of 4.9%; the core PPI rose 0.2% month-on-month, below the expected 0.3% and the previous value of 0.4%.

[Source: U.S. Bureau of Labor Statistics]

This is further evidence of easing U.S. inflationary pressures following yesterday's sharper-than-expected cooling of the CPI.

The June PPI was lower than expected across the board, aligning with the previously released CPI data. Yesterday's data showed that the CPI in June plunged 0.4% month-on-month, while the monthly core CPI rate unexpectedly fell to flat. Both PPI and CPI are inflation indicators, and their consistent direction further confirms the disinflationary trend.

From the breakdown of the data, falling energy prices remain the core driver pulling down the PPI. Gasoline prices plunged by about 10% month-on-month in June, and the average monthly price of Brent crude oil fell from $103.7 per barrel in May to $84.4 per barrel. This is highly consistent with the performance of the energy sub-index in yesterday's CPI data.

Following the release of the data, bets in the interest rate futures market on a Fed rate hike in July declined further. The CME FedWatch Tool showed that the probability of keeping interest rates unchanged in July has risen to over 85%. The U.S. Dollar Index edged lower in the short term, Treasury yields fell, and gold ticked up slightly, trading around $4,060 per ounce.

[Source: TradingView]

The components of the PPI data that are closely related to the Personal Consumption Expenditures (PCE) price index also performed moderately. Key categories such as airfares, healthcare services, and portfolio management showed no obvious upward price pressure, setting a relatively mild tone for the June PCE data.

The market expects the year-on-year growth rate of the June PCE to fall further to around 3.8% from 4.2% in May, and investors are closely watching whether the June PCE data can continue the downward trend of May.

Federal Reserve Chairman Kevin Warsh will testify before the Senate Banking Committee later today. How he responds to this data will be the focus of market attention. The consecutive cooling of both PPI and CPI is providing the Fed with more room to wait and see.