US producer prices unexpectedly fall in June

WASHINGTON, July 15 (Reuters) - U.S. producer ‌prices unexpectedly fell ​in ​June, another indication that inflation was retreating before the recent escalation in the Middle East conflict.

The Producer Price Index for final demand dropped 0.3% ‌last month after a downwardly revised 0.6% increase in May, the ⁠Labor Department's Bureau of Labor Statistics said on Wednesday. Economists polled by Reuters had forecast the PPI ‌unchanged after a previously reported ‌1.1% advance in May.

In the 12 months through June, the PPI increased 5.5% after rising 6.0% in May.

A 1.4% decline in goods prices, the largest since July ​2022, accounted for the decrease in the PPI over the month. Goods prices were weighed down by a 6.4% drop in the cost of energy products. Wholesale ⁠food prices fell 0.6%. Prices for services rose 0.2%.

The ceasefire between the United States and Iran collapsed last ​week after commercial tankers came under fire in the Strait of Hormuz, triggering military strikes between the United States and Iran. Oil prices ​rose to a four-week high after Washington reimposed ‌a naval blockade of Iran.

The government reported on Tuesday that the Consumer Price Index dropped 0.4% in June, the largest decline ⁠since April 2020, after increasing 0.5% in May. The decrease, which mostly reflected a decline in energy prices, slowed the annual increase in consumer inflation to 3.5% from 4.2% in May.

The Federal ⁠Reserve tracks the Personal Consumption Expenditures Price Indexes for its 2% inflation target.

Prior to the PPI ​data, economists estimated that PCE inflation excluding the volatile food and energy components rose 0.2% in June after climbing 0.3% in May. That would translate into a 3.3% year-on-year increase in the ‌so-called core PCE inflation after rising 3.4% in May.

Financial markets expected the U.S. central bank to keep its benchmark overnight interest ‌rate unchanged in the 3.50%-3.75% range this month. Traders, however, continued to see a rate hike ⁠in September. Inflation was last ‌below 2% in early 2021. ​Fed Chair Kevin Warsh told lawmakers on Tuesday that the central bank had "no tolerance for persistently elevated inflation."

(Reporting by Lucia Mutikani; Editing by ‌Chizu Nomiyama)

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