By Ben Leubsdorf
A gauge of U.S. business prices rose only slightly in July, a sign that inflationary pressures remain modest across the economy.
The producer-price index for final demand, which measures changes in the prices firms receive when they sell goods and services, increased a seasonally adjusted 0.1% last month from June, the Labor Department said Friday. Excluding the often-volatile categories of food and energy, producer prices rose 0.2%.
Economists surveyed by The Wall Street Journal expected the index to rise 0.2% last month and predicted a similar 0.2% increase excluding food and energy.
Producer prices rose 1.7% in July from a year earlier, slipping from annual gains of 1.9% in June, 2% in May and 2.1% in April.
"After briefly breaching the 2% threshold and sparking fears of runaway inflation, headline price pressures appear to be abating," Sterne Agee chief economist Lindsey Piegza said in a note to clients.
Prices for goods were flat last month after rising 0.5% in June. Food prices rose 0.4% in July and energy prices fell 0.6%, including a 2.1% decline in gasoline prices. Prices for services rose 0.1% last month after climbing 0.3% in June.
"Aside from recent energy weakness, the PPI results continued to point to a steady firming in underlying inflation trends that we expect to continue to be seen in a continued inflection higher" in other inflation gauges, Morgan Stanley economist Ted Wieseman said in a note to clients.
Inflation in the U.S. and other developed economies has been sluggish in recent years. The Federal Reserve sets a 2% goal for inflation, but U.S. prices have undershot that target for more than two years, according to the central bank's preferred gauge of inflation, the Commerce Department's personal consumptions expenditures price index.
Price gains picked up somewhat this spring. The Commerce Department index showed prices rose 1.6% in June from a year earlier, up from a 1% annual gain in February. The Labor Department's consumer-price index found prices rose 2.1% in June from a year earlier, up from a 1.1% year-over-year increase in February.
Inflation "has moved somewhat closer" to the Fed's target, the central bank said in its July 30 policy statement, and the chance of inflation running persistently below the 2% target "has diminished somewhat."
Still, the Fed reiterated last month that it doesn't plan to begin raising interest rates, which have been near zero since December 2008, in the near future. Despite firming inflation and improvement in the labor market, "a highly accommodative stance of monetary policy remains appropriate," the Fed said. Most Fed policy makers expect to begin raising rates next year.
The PPI report, which the Labor Department overhauled this year, can be a signal of future inflation as companies pass their costs along to consumers.
The former headline PPI number, now called "finished goods," ticked up 0.1% in July from the prior month and was up 2.9% from a year earlier.
The personal consumption category, which is the report's closest equivalent to the closely watched CPI, rose 0.2% from June and 2.1% from July 2013.
The Labor Department will release its CPI report for July on Tuesday.
A separate Labor Department index, which tracks prices for U.S. imports, declined 0.2% in July due to a drop in the price of petroleum, the agency said Thursday.
Write to Ben Leubsdorf at firstname.lastname@example.org and Jonathan House at email@example.com
(END) Dow Jones Newswires
August 15, 2014 10:13 ET (14:13 GMT)
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