Significant Slowing in US Producer Price Growth
The growth rate of producer prices in the US surprisingly slowed down more than economists had predicted in June, according to Bureau of Labor Statistics data. This serves as the latest indication that inflationary pressures may be losing steam in the world's leading economy. Such signs are strengthening the argument for the Federal Reserve to re-evaluate its robust policy tightening strategy, particularly following the anticipated interest rate hike set for later this month.
June’s Producer Price Figures Fall Short of Expectations
The data revealed that the seasonally-adjusted producer prices for the month moderated to an annual 0.1%, a considerable deceleration from the downwardly revised figure of 0.9% in May. Economists were predicting a rise of 0.4%. Furthermore, month-on-month producer price growth also recorded a slight 0.1% uptick, bouncing back from a 0.4% contraction experienced in the previous month. Predictions had forecast a more considerable increase of 0.2%.
The Federal Reserve’s Anticipated Policy Shift
Looking forward, the Federal Reserve is largely expected to hike borrowing costs by another 25 basis points in their upcoming policy meeting scheduled for late July. According to Investing.com's Fed Rate Monitor Tool, there is a greater than 91% chance of a rate hike during the session.
A Possible Pivot in Monetary Policy Approach
However, some uncertainty persists regarding the Federal Reserve's future actions and whether policymakers will deviate from its long-standing tightening cycle, which was established to keep soaring inflation in check. In light of the latest producer price index data, along with softer-than-expected consumer price figures, the probability that the Fed will maintain steady rates at their September meeting is now over 81%.