Producer prices rise modestly, bolstering case for Fed rate cut in September

US producer prices increased in June continuing the trend of easing inflation that is strengthening expectations for a Federal Reserve interest rate cut in September.

The producer price index (PPI) is a measure of wholesale inflation.

It rose 0.2 per cent in June following flat reading in May.

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This, according to the Labor Department's Bureau of Labor Statistics. The increase was slightly higher than the 0.1 per cent forecast by economists.

The 12-month PPI inflation rate climbed to 2.6 per cent in June. It was up from 2.4 per cent in May. However, this remains well below the highs seen earlier this year.

This news comes on the heels of Thursday's report showing a decline in consumer prices for the first time in four years.

The decline was driven by lower gasoline costs. There was a broad slowdown in the prices of goods and services including rent.

The combination of tame inflation data and a recent rise in the unemployment rate to a 2-and-a-half-year high of 4.1 per cent leads economists and financial markets to believe the Fed will cut interest rates in September.

Another reduction by year-end will potentially follow this action.

During his congressional testimony this week Federal Reserve Chair Jerome Powell acknowledged the improving inflation picture. However, he also expressed concerns about potential labour market weakness.

He stated, "We have seen considerable softening."

The Fed has kept its benchmark interest rate unchanged since last July. It has remained within the current range of 5.25 per cent to 5.50 per cent.

Since 2022 the central bank has raised rates by 5.25 percentage points. However, the recent economic data suggests a shift in policy direction.

This shift may be on the horizon.

(With inputs from Reuters)