July's Producer Price Print Was Diesel, Not Disinflation

Producer prices for final demand edged down 0.03% in July from June, soft enough to read as disinflation, and the same release revised June up to -0.1% from the -0.28% originally reported a month earlier ^[1][2]. The July softness came from energy passing through into freight; the revision came from services, which carry 68% of the index ^[1][4][5].

Start with the mechanics of the headline. The PPI for energy plunged 3.1% month to month in July, the second consecutive drop after three months of spikes, and is still up 17.9% year over year ^[15]. Cheap diesel shows up fast in trucking: transportation and warehousing services fell 1.8% in July, also a second straight decline, including a 1.8% drop in truck transportation of freight ^[8]. That component is 4.9% of overall PPI, so it subtracted roughly 0.09 percentage points from the headline on its own ^[4]. Food fell 0.93%, its second decline in a row, and is flat year over year ^[16]. Meanwhile "other services", at 38% the heaviest block in the index, rose 0.6%, worth about 0.23 percentage points ^[10][5]. The composition matters more than the sign.

Now the revision, which is where the information is. A month ago the BLS reported June services PPI at +0.21%; on Thursday it reported +0.47% ^[6]. That is 0.26 percentage points higher, more than double, and a pace near 5.8% annualized if repeated ^[1][3]. Core PPI final demand for June was revised from +0.20% to +0.39%, or 4.8% annualized ^[12], an up-revision of 0.19 points ^[6]. The largest single culprit is trade services, revised from +0.4% to +1.4% ^[9]. At a 19% weight, that one revision is worth roughly 0.19 points of headline PPI, which is essentially the entire 0.18-point up-revision to June's headline ^[7][2].

So the run rate is not what the July print advertises. Core PPI, which strips energy and food and is dominated by services, rose 0.24% in July, an annualized 3.0% ^[11], against a revised June pace of 4.8% ^[12]. Year over year, core is up 4.2%, and April through July were the worst four months since January and February of 2023 ^[13]. Core goods are up 4.9% year over year, with the last three months the worst since February 2023 ^[14]. Headline PPI is up 4.7%, down from multi-year highs of 5.5% to 5.9% in the prior three months but still 0.5 points above core ^[3][8] because energy remains 17.9% higher than a year ago even after two monthly declines ^[15]. Wolf Richter's read is that both the headline and core series have been zigzagging higher since their 2023 lows rather than trending down ^[17].

The practical takeaway for anyone setting prices or budgeting input costs: the energy relief in freight is real and immediate, and it is also the most reversible part of the index, since three months of energy spikes preceded these two declines ^[15]. Services inflation running near 4% year over year is the part that does not unwind when diesel ticks back up ^[7].

Watch whether next month's release does to July's services number what this one did to June's, and watch trade services specifically, since a single 1.0-point revision there moved the entire headline ^[9][7].