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August 9, 2019 11:00 AM, EDT

Core Producer-Price Index Posts First Drop in Two Years

Forklift working in warehouse Andrew Harrer/Bloomberg News

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A measure of underlying U.S. producer prices unexpectedly fell in July, with the first drop since early 2017 adding to signs of muted inflation that may reinforce the case for further Federal Reserve easing.

Excluding food and energy, producer prices dropped 0.1% from the prior month, compared with projections for a 0.1% gain, a Labor Department report showed Aug. 9. The 2.1% annual increase was the slowest in two years. The overall producer-price index rose 0.2% from June, matching projections.

The report, which measures wholesale and other business selling prices, showed costs declined for truck transportation of freight, guestroom rentals, loan services and physician care. The strong dollar also may be a factor, and the data suggest businesses have had difficulty raising prices despite increasing tariffs and labor costs.

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China said Aug. 9 that its own producer-price index fell 0.3% from a year earlier, the first drop in almost three years, a sign of muted inflation for factories globally.

The U.S.-China trade war intensified in the first week of August, likely weighing on global growth in the months to come, with tariffs set to rise on a host of consumer goods from China.

President Donald Trump repeatedly has cited low inflation and the strong dollar in his attacks on the Fed to cut interest rates more deeply. While Fed Chairman Jerome Powell signaled that last week’s quarter-point interest-rate cut marked the start of only a short round of easing, investors are betting the central bank will reduce borrowing costs several more times this year.