WASHINGTON -- Wholesale price increases in the United States eased in July, suggesting that inflation pressures are further cooling as the Federal Reserve moves closer to cutting interest rates, likely beginning next month.

The Labor Department announced on Tuesday that its producer price index, which measures inflation before it reaches consumers, increased by 0.1% from June to July. This was a decrease from the 0.2% rise seen the previous month. When compared to a year prior, prices were up 2.2% in July. This marked the smallest year-over-year increase since March, down from a 2.7% increase in June.

Wholesale price growth has cooled significantly in July, indicating a widespread and consistent decrease in price hikes. These increases reached a four-decade peak in mid-2022 but are now trending closer to the Federal Reserve's 2% inflation goal. The Labor Department will issue its most prominent inflation metric, the Consumer Price Index, on Wednesday.

A report released on Tuesday revealed a 0.2% decrease in prices for the nation's extensive service sector last month, marking the most substantial decline since March 2023. Prices for goods increased by 0.6%, primarily due to a 2.8% surge in gasoline prices between June and July.

Leaving out food and energy costs, which are known to swing drastically month to month, so-called core wholesale prices remained stable compared to June and rose by 2.4% since July 2023. The upward adjustments were more moderate than experts had predicted.

The producer price index can be a leading indicator of consumer inflation trends. Economists pay close attention to it as some of its constituents, particularly healthcare and financial services, contribute to the Fed’s preferred inflation metric – the personal consumption expenditures, or PCE, index.

Paul Ashworth, chief North America economist at Capital Economics, stated that the prices incorporated into the Personal Consumption Expenditures (PCE) index were generally "very positive." He pointed out, specifically, modest increases in wholesale prices at medical offices and hospitals. Consequently, Ashworth lowered his projection for core PCE inflation in July to 1.4% from 1.8%.

Experts predict that the Consumer Price Index (CPI) report for Wednesday will reveal a 0.2% increase in consumer prices from June to July, following a 0.1% decline in the prior month. This translates to a 3% rise in prices compared to July 2023, based on data compiled by FactSet.

With the November presidential election approaching, many Americans remain dissatisfied with the soaring cost of goods, which have increased by almost 19% since inflation took hold in the spring of 2021. Many have attributed this rise in prices to President Joe Biden, but it is uncertain if they will hold Vice President Kamala Harris accountable as she campaigns for the presidency.

In its battle against rampant price increases, the Federal Reserve increased its key interest rate eleven times in 2022 and 2023, bringing it to its highest level in 23 years. From 9.1% in June 2022, year-over-year consumer price inflation has moderated to 3% .

The U.S. employment report for July , which was considerably lower than anticipated, strengthened the prevailing view that the Fed’s monetary policymakers will initiate rate reductions at their mid-September meeting to bolster the economy. The employment report revealed that the unemployment rate climbed for the fourth consecutive month to 4.3%, remaining robust by historical benchmarks but representing the highest level since October 2021.

Repeated interest rate reductions by the Federal Reserve would probably result in reduced borrowing expenses throughout the economy — for mortgages, auto loans, and credit cards, as well as business loans, and could also stimulate stock valuations.

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