Producer prices soar 7.8% annually in July, most on record

Prices rose 1% month over month

Producer prices accelerated at the fastest annual pace on record in July as supply chain disruptions and materials shortages continued to put upward pressure on costs.

The producer price index for final demand increased at a 7.8% pace for the 12 months ended July, according to the Labor Department. The July print was faster than the 7.3% pace recorded in June and ahead of the 7.3% rate that analysts surveyed by Refinitiv were expecting. The reading was the strongest since recordkeeping began in November 2010. 

Producer prices rose 1% in July, matching the increase from June. Analysts were anticipating prices would grow at a 0.6% pace.

Nearly three-quarters of the increase was due to the 1.1% rise in prices for final demand services, the largest on record. Almost half of the increase was due to a 1.7% rise in margins for final demand trade services, which measure changes in margins received by wholesalers and retailers.

Approximately 20% of the increase can be attributed to margins for automobiles and automobile parts retailing, which jumped 11.2%. Airline passenger services and hospital outpatient care were among the other indexes that saw gains. 

Portfolio management saw a 1.8% decline. Indexes for chemicals and allied products wholesaling and for fuels and lubricants retailing also turned lower.  

Prices for final demand goods, meanwhile, rose 0.6%. 

Prices for tobacco products saw a notable 2.7% increase while prices for beef and veal fell 11.6%. 

Core producer prices, which exclude food and energy, rose 1% in July, double the 0.5% gain that was expected. Core prices climbed 6.2% annually, compared to the 5.6% increase that was forecast. The year-over-year increase was the largest since the data series began in August 2014. 

The annual data has a “base effects” skew as a result of the price decline that occurred at the beginning of the pandemic.

The Federal Reserve has said the recent price increases are “transitory” and that cost pressures will subside as supply chain issues caused by the pandemic are resolved.