US producer prices record biggest drop in 11 months

U.S. producer prices unexpectedly fell in July, recording their biggest drop in nearly a year and pointing to a further moderation in inflation that could delay a Federal Reserve interest rate increase.

Other data on Aug. 10 showed an increase in the number of Americans filing for unemployment benefits last week. The trend in weekly jobless claims, however, remained consistent with a tightening labor market.

The Labor Department said on Aug. 10 its producer price index for final demand slipped 0.1 percent last month, weighed down by decreasing costs for services and energy products.

That was the largest decline since August 2016 and reversed June's 0.1 percent gain. In the 12 months through July the PPI increased 1.9 percent after rising 2 percent in the year through June. Economists had forecast the PPI ticking up 0.1 percent last month and climbing 2.2 percent from a year ago.

Though the link between the PPI and the consumer price index has weakened, last month's drop in producer prices could worry Fed officials who have long argued that the moderation in inflation was temporary.

Fed Chair Janet Yellen told lawmakers last month that "some special factors" were partly responsible for the low inflation readings. Inflation, which has remained below the U.S. central bank's 2 percent target for five years, is being watched for clues on the timing of the next Fed interest rate increase.

The U.S. central bank is expected to announce a plan to start shrinking its $4.2 trillion portfolio of Treasury bonds and mortgage-backed securities at its policy meeting next month.

But low inflation, characterized by sluggish wage growth, suggests the Fed could delay raising rates again until December. It has increased...