In June, U.S. producer prices remained flat, offering new evidence that inflationary pressures are easing more decisively across the economy. The Producer Price Index (PPI), a key gauge of wholesale inflation, showed no change on a month-over-month basis. This comes as a surprise to analysts, who had expected a modest rise.

Cooling Inflation at the Wholesale Level

The flat reading in headline PPI suggests a continued cooling trend in prices businesses pay for goods and services before they reach consumers. On an annual basis, the PPI rose by 2.3%, slightly below expectations and down from the previous year-over-year figure. This is part of a broader deceleration in inflation that aligns with recent data from the Consumer Price Index (CPI), reinforcing the narrative that pricing pressures are retreating more broadly throughout the supply chain.

When excluding the typically volatile food and energy categories, core PPI also registered no monthly growth. Markets had anticipated a 0.2% increase. Over the past year, core producer prices rose by 2.6%, undershooting forecasts and down from prior readings. These figures suggest that underlying inflation dynamics are moderating, which is crucial for policymakers who closely track core metrics for trend assessment.

A more refined measure, which excludes food, energy, and trade services, also showed no change in June. The year-over-year gain in this category came in at 2.5%, continuing its gradual decline.

Implications for Monetary Policy

The PPI data carries significant implications for the Federal Reserve. With pricing pressures easing across multiple dimensions—headline, core, and refined core—there’s increasing evidence that the Fed’s aggressive interest rate campaign is having the intended disinflationary effect. This adds weight to market expectations that rate cuts may be on the horizon, although the Fed remains cautious, insisting on more sustained progress before pivoting policy direction.

Service Sector Activity Remains in Contraction

While inflation metrics suggest growing economic stability, other indicators point to lingering fragility in the services sector. The New York Fed’s gauge of business activity for services in the region remained in contractionary territory for July. Though slightly improved from the previous month, the index still posted a negative reading, indicating that service firms are continuing to face headwinds.

The subdued activity in services contrasts with more resilient readings in goods-producing sectors, underlining a bifurcated economic environment. Weak demand, rising costs, and lingering uncertainty may be weighing on service providers, even as input prices moderate.

Taken together, June’s producer price data and the latest regional business activity figures suggest that while inflation continues to ease, economic momentum is still uneven. The Fed’s path forward will likely hinge on how quickly the slowdown in inflation translates into broader economic stability, particularly in the more labor-intensive and domestically driven services sector.