A Gauge of U.S. Business Prices Dropped Broadly in July

By Sarah Chaney Features Dow Jones Newswires

A gauge of U.S. business prices fell in July for the first time in 11 months, suggesting nagging downward pressure on inflation.

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The producer-price index for final demand, which measures changes in the prices that U.S. companies receive for their goods and services, decreased 0.1% in July from a month earlier, the Labor Department said Thursday. From a year earlier, prices advanced 1.9%.

The subdued inflationary pressures at the producer level arrive after a modest acceleration earlier in the year.

"It was interesting that across all of our major indexes, across all levels of production, we did see price declines this month," said Scott Sager, a Bureau of Labor Statistics economist.

Though declining energy prices are often a culprit in pulling down broader inflation figures, the index for core prices, which excludes prices for food and energy, dropped last month. Both goods and services prices within the core measure slowed.

Core goods' prices fell 0.1%, bucking an upward trend in producer prices in China.

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"That was the biggest surprise," said Ian Shepherdson, chief economist at Pantheon Macroeconomics, as China has become the key marginal player in pricing. "...There's quite a big gap between them, so it wouldn't surprise me if the U.S. numbers started to go back up again a bit."

Producer prices don't necessarily translate into what consumers pay, but readings tend to be consistent with trends of other major inflation gauges. The Labor Department releases July figures for the consumer-price index Friday, and economists surveyed by The Wall Street Journal are expecting a 0.2% increase in the key inflation metric.

Inflation remaining persistently below the Fed's target could present a challenge to policy makers considering when next to raise the central bank's benchmark rate. Fed officials have raised the rate twice this year, and have penciled in one more increase.

"At this point, my assessment is that the conditions remain in place for inflation to gradually return over the next year or so to our symmetric goal of 2% on a sustained basis," said Loretta Mester, Federal Reserve Bank of Cleveland president, in a speech earlier this month. "These conditions include growth that's expected to be at or slightly above trend, continued strength in the labor market, and reasonably stable inflation expectations."

Write to Sarah Chaney at sarah.chaney@wsj.com

(END) Dow Jones Newswires

August 10, 2017 15:51 ET (19:51 GMT)