The rate of increase in rice wholesale prices rose in June, indicating that upward pressure on prices is still high: AP

WASHINGTON (AP) — U.S. wholesale prices rose 2.6% last month, above expectations.

This rise was the most rapid since 2023/3, and occurred while other price indicators showed an easing of inflation.

The producer price index (which tracks inflation before reaching consumers) announced by the Labor Department on Friday was flat the previous month, but rose 0.2 percent from May to June. So-called core wholesale prices, excluding food and energy prices, which tend to fluctuate from month to month, rose 0.4% from May and 3% from 2023/6.

The rate of increase in wholesale prices last month was greatly boosted by a 0.6% rise in service prices driven by rising profit margins of machinery and automobile wholesalers. However, the profit margins of wholesalers and retailers (classified as “trade services” in producer price reports) are extremely volatile. In contrast, inflation in the wholesale industry, which excludes trade services, foodstuffs, and energy, remained flat from May to June. It helps to explain why many economists weren't wary of Friday's unexpected rise in wholesale price increases.

Furthermore, overall prices fell by 0.5%. Gasoline prices fell 5.8% at wholesale prices. Food prices have also fallen.

The producer price index can indicate the direction of consumer inflation at an early stage. Also, since some components of the producer price index (especially health care and financial services) are reflected in the personal consumption expenditure (PCE) index, which is an inflation index recommended by the Federal Reserve (Fed), economists are closely watching the producer price index. Some of the components of wholesale prices reflected in PCE (including part of health care costs) fell short of expectations on Friday, raising expectations for continued progress in mitigating consumer price increases, and results reassured the Fed.

Wholesale prices on Friday followed Thursday's government report that consumer inflation in June had cooled down for 3 consecutive months. Consumer prices fell 0.1% from May to June. This decline in inflation is the first time since May 2020, when the economy was paralyzed by the pandemic.

Overall, this week's price figures, along with other recent data, still suggest that the slowdown in inflation that first hit the country when the economy got off to a rocket start from the pandemic recession three years ago, leaving serious supply shortages and causing prices to soar.

The Federal Reserve raised the base interest rate 11 times in 2022 and 2023 in an attempt to suppress price increases, setting it to a high level for the first time in 23 years. The inflation rate then declined from 9.1%, which was a high level for the first time in 40 years, and there is a strong view that the central bank will begin cutting interest rates in September.

Bill Adams, chief economist at Comerica Bank, says. “Overall, inflationary pressure has moderated over the past two years, but it's still slightly stronger than the Fed would like. “Now that the economy is sluggish, I think the right time for the Fed to cut interest rates is near. However, the Federal Reserve intends to gradually cut interest rates.

Interest rate cuts by the Federal Reserve are likely to lead to lower borrowing costs for mortgages, car loans, credit cards, and companies, and there is also a possibility that stock prices will be boosted.

Since the inflation rate temporarily rose at the beginning of this year, the Federal Reserve had to retreat from observing interest rate cuts. Policymakers said moderate price increases would have to continue for several months in order to lower key interest rates from their 23-year high.

Although inflation has moderated, the costs of food, rent, health care, and other necessities of life remain far higher than before the pandemic.

However, despite prolonged inflationary pressure and rising borrowing costs, the US economy has remained strong, albeit gradually decelerating. Employment remains strong. The unemployment rate is relatively low, and American employment is stable.