July Producer Prices Point To Further Disinflation In Pipeline

The fall in German producer prices was larger than expected in July, at -1.1% (-0.2% expected, -0.3% June), and -6.0% Y/Y (-5.1% expected, 0.1% prior).

• The largest Y/Y decline since 2009 amid the Global Financial Crisis was due mostly to the huge base effect (Jul 2022 saw PPI rise 5.3% M/M on wholesale energy prices) meaning energy prices fell 19.3% Y/Y (and 2.5% M/M).
• But in the latest month, falling intermediate goods prices and disinflation in consumer and capital goods also were notable. Ex-energy producer prices rose 2% Y/Y (slowest since Feb 2021) and fell 0.4% M/M.
• Delving deeper into the intermediate goods prices, much of the deflation (-3.4% Y/Y, -1.0% M/M) was on the back of metals prices dropping (-10.5% Y/Y, -2.3% M/M) along with softer fertiliser and wood prices. This suggests further disinflation making its way through the production pipeline, amid a manufacturing slump and softer commodity prices.
• There was however some notable continued stubborness in non-durable consumer goods, at +8.1% Y/Y, largely because food prices rose 9.2% Y/Y (sugar, potatoes, pork prices all soared), albeit flat M/M. Durable goods prices jumped 5.8% Y/Y, but like non-durables were flat on the month. Capital goods prices were up 5.5% Y/Y / 0.3% M/M, driven by machinery and motor vehicles prices.
• This is a slightly overlooked series but is part of the mix of indicators that suggests that headline CPI will continue to come down, with disinflationary progress likely to continue in German core goods CPI (ex-food / energy).