Producer prices rose record 7.8 percent annually in July

Producer prices rose a seasonally adjusted 1 percent in July and record-breaking 7.8 percent over the past 12 months on an unadjusted basis, according to data released Thursday by the Labor Department.

The producer price index (PPI) for final demand, which measures changes in prices charged by domestic producers to suppliers and retailers, rose at the fastest annual pace since the federal government began calculating year-over-year PPI changes in November 2010, the Labor Department said.

The PPI without food, energy and trade services rose 6.1 percent on an unadjusted basis over the past 12 months, the highest level recorded since the series began in August 2014.

Prices for final demand services also notched a record-breaking monthly increase in July, rising 1.1 percent for the first time since the Labor Department started calculating the metric in December 2009.

Economists expected the PPI to rise sharply again in July after jumping 7.3 percent in the year since June. 

Several months of supply chain disruptions and a tepid jobs recovery in the manufacturing sector have made it difficult for many producers to meet the rush of demand unleashed by the opening of the economy without raising prices. Prices are also climbing back from depths hit during the pandemic, which also amplifies the yearly increase.

Even so, the pace of July’s producer price gains well exceeded analysts expectations of another 7.3 percent annual jump with a 0.6 percent monthly increase.

“We expect the July report to mark the peak of producer price inflation as supply pressures gradually unwind in the coming months and demand moderates from its blistering pace in the first half of the year. However, stubborn pandemic disruptions will continue to hamper supply through year-end, keeping producer prices sticky,” wrote Mahir Rasheed of Oxford Economics in a Thursday analysis.

President Biden and Federal Reserve leaders have expressed confidence that the burst of inflation will be temporary and remain contained to sectors hit hardest by the pandemic. 

Roughly 75 percent of July’s monthly PPI increase came from rising prices for services, the Labor Department said, but much of that rise was driven by the automobile sector and auto retailers, which have been slammed by crucial parts shortages. 

The sharp monthly increase in producer prices also appeared to have a minimal impact on the pace of consumer price increases, according to data released Wednesday by the Labor Department.

While the PPI rose 1 percent last month, the consumer price index rose just 0.5 percent — still quickly, but much lower than June’s 0.9 percent monthly increase.