U.S. Producer Prices Rise Only 5.5%, Easing Market Concerns

PPI Follows June CPI in Undershooting Expectations
New York Fed President John Williams Offers Optimistic View
Likelihood of July Rate Hike Drops Further to 11%

U.S. producer prices in June rose at a much slower pace than market expectations. Following the previously released lower-than-expected June Consumer Price Index (CPI), the Producer Price Index (PPI) also came in below forecasts, alleviating concerns over aggressive interest rate hikes by the Federal Reserve (Fed). The market was further reassured after John Williams, President of the Federal Reserve Bank of New York, stated that “inflation has peaked.”

Ships near the Strait of Hormuz on the 30th of last month (local time). Photo by Reuters Yonhap News.

According to the Bureau of Labor Statistics (BLS) on the 15th (local time), the PPI for June increased by 5.5% year-on-year. This figure is significantly below the Bloomberg consensus forecast of 6.2%. On a month-on-month basis, the PPI fell by 0.3%, defying market expectations for a flat reading. The core PPI, which excludes food and energy, rose 4.7% year-on-year, also falling short of market projections (5.1%). Since producer prices are reflected in consumer prices with a certain time lag, the PPI is considered a leading indicator for future inflation trends.

The stabilization of energy prices had the greatest impact. Energy prices declined by 6.4% from the previous month, while gasoline prices plunged 12.0%, dragging down the overall PPI. Prices for diesel, jet fuel, and crude oil also decreased. The June CPI, released earlier, also dropped by 0.4% from the previous month—the largest monthly decline in over six years. The Associated Press noted, “Following the CPI, the PPI is helping to cool inflation,” but also warned, “recent renewed military engagements between the U.S. and Iran could reignite inflationary pressures.”

Federal Reserve (Fed) Building, USA. Photo by Reuters Yonhap News Agency

The Fed’s July Beige Book, a regional economic conditions report made public on this day, assessed that the U.S. economy has continued to grow “slightly” to “moderately” in recent weeks. All 12 districts reported that inflation rates were either unchanged or had slowed. The Fed explained, “Some firms cited Middle East conflicts, while others cited tariffs as reasons for rising costs,” adding, “Consumer prices continued to rise, and companies in some districts reported heightened price sensitivity among consumers.”

Additionally, Williams, President of the New York Fed, stated at a speech to business leaders in New York that day that “inflation has peaked” and is expected to fall to around 3.25% by the end of this year. He forecasted a gradual decline towards the Fed’s 2% target next year, with the target expected to be reached in 2028. He added that tariffs would only moderately stimulate prices and that oil prices have passed their peak, likely returning to near pre-war levels. Fed Chair Kevin Warsh also explained at a U.S. Senate Banking Committee hearing that investments in artificial intelligence (AI) are unlikely to cause persistent inflation, stating, “A one-time price increase does not necessarily mean inflation. There will be a supply-side response.”

On the other hand, Lisa Cook, a Fed Governor, heightened market caution by stating at an “Exchequer Club” speech in Washington D.C. that she is “prepared to take action” if inflation does not decelerate (disinflation) soon. However, she also signaled a cautious stance, saying she would “wait a little longer” to observe future developments. She identified the ongoing boom in AI investment, tariffs, and inflationary pressures stemming from the Middle East conflict as persistent upside risks.

Market participants now believe the likelihood of a Fed rate hike this month has dropped further. As of 9:00 a.m. (Korea Standard Time) on the 16th, the Chicago Mercantile Exchange (CME) FedWatch tool showed that the probability of a 25 basis point (1bp = 0.01 percentage point) rate hike at the July Federal Open Market Committee (FOMC) meeting was about 11%. This is markedly lower than the probability a day earlier (16%) and a week earlier (31%). The July FOMC will be held on July 28–29.

This content was produced with the assistance of AI translation services.