The energy aggregate accounted for much of the surprise, as the June survey captured much more of the subsequent rebound in energy prices than was expected. But, we would note that this is a "zero-sum" game, as it will only shift strength out of July that we would have otherwise forecast. Energy prices surged 3.4%, with gasoline prices jumping 7.6%.
Food prices also contributed to the higher overall figure, with a gain of 0.4% following May's 0.1%. The weakness in the core was led by a 1.5% drop in light trucks, as well as declines in cars, sanitary papers & health products, newspapers, and cigarettes.
Overall, the core index continues to reveal that underlying trends in inflation remain benign, with the index falling at a 0.3% year-over-year rate -- one of the lowest rates in the history of the series. While we continue to believe that talk of deflation is overblown, with the recent strength in trade price data supporting that view, the PPI data will not change the Fed's view that the risk of a near-term upswing in underlying inflation is negligible as well. From MMS International