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Milk is shown for sale at a grocery store in Del Mar, California, in this March 6, 2013 file photo. REUTERS/Mike Blake

U.S. producer prices rise as oil price drag slows

WASHINGTON – U.S. producer prices rose for a third straight month in July, suggesting the drag on inflation from weaker oil prices was easing.

The Labor Department said on Friday its producer price index for final demand increased 0.2 percent last month after increasing 0.4 percent in June.

An increase of 0.4 percent in services prices, which offset a fall of 0.1 percent in the cost of goods, accounted for the increase in the PPI last month.

In the 12 months through July, the PPI fell 0.8 percent after declining 0.7 percent in June. It was the sixth straight 12-month decrease in the index.

Economists polled by Reuters had forecast the PPI edging up 0.1 percent last month and falling 0.9 percent from a year ago.

U.S. stock index futures and prices for U.S. Treasuries fell after the data. The dollar pared losses against a basket of currencies.

With the dollar remaining strong and oil prices falling again, inflation pressures are likely to remain benign. That and China’s surprise devaluation of the yuan this week has some economists believing that the Federal Reserve will be hesitant to raise interest rates next month.

Related: U.S. shale firms slide deep into the red on low oil prices: Kemp

Inflation has been persistently running below the Fed’s 2 percent target. A government report on Thursday showed import prices fell 0.9 percent in July.

Economists at BNP Paribas estimate that a 10 percent drop in the yuan against the dollar could shave about one-tenth of a percentage point off U.S. inflation over 12 months.

The dollar has gained 15.7 percent against the currencies of the United States’ main trading partners since June 2014.

Last month, wholesale gasoline prices rose 1.5 percent after gaining 4.3 percent in June.

Food prices dipped 0.1 percent in July on a sharp drop in egg prices, which had surged in recent months. Food prices rose 0.6 percent in June. Wholesale chicken egg prices fell 24.2 percent in July after soaring a record 84.5 percent in June.

The volatile trade services component, which mostly reflects profit margins at retailers and wholesalers, rose 0.4 percent in July after increasing 0.2 percent in the prior month.

A key measure of underlying producer price pressures that excludes food, energy and trade services rose 0.2 percent last month after increasing 0.3 percent in June. The so-called core PPI was up 0.9 percent in the 12 months through July.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

This article was written by Lucia Mutikani from Reuters and was legally licensed through the NewsCred publisher network.

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