In June, producer price index saw a significant decline in inflation.

Inflation Drops to 0.1% Annual Rate, Signaling Positive News for Biden and Bidenomics

In a surprising turn of events, inflation as measured by the producer price index (PPI) has fallen to a 0.1% annual rate in June. This indicates that prices have nearly stopped increasing altogether after experiencing significant hikes over the past few years.

The Bureau of Economic Analysis reported on Thursday morning that on a month-to-month basis, the wholesale price index increased by 0.1%.

Abating Inflationary Pressures

This drop-off in year-over-year inflation is a positive sign that inflationary pressures are abating, thanks to the Federal Reserve’s campaign to slow economywide spending by hiking interest rates. The PPI’s headline number is now at its lowest point since September 2020.

In just a year, inflation has plummeted from over 11% to nearly zero this past month.

“In short, PPI inflation surprised to the downside and decelerated further to end the second quarter,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics. “Headline producer prices are well below 2%, and annual changes in the core and core-core indexes are moving towards target.”

Core inflation, which excludes volatile food, energy, and transportation prices, is still running above headline PPI inflation, standing at a 2.6% annual rate in June.

Thursday’s PPI report follows the release of the consumer price index (CPI) for June, which is even more closely watched. The CPI inflation rate fell to 3% annually, a decline of a whole percentage point from the previous month.

The annual CPI inflation rate has been trending down since its peak in June of last year and is currently at its lowest level since March 2021, around the time when the country’s inflationary troubles began.

The country’s inflation has been gradually cooling in response to the Federal Reserve’s aggressive interest rate hikes. Since last March, the Fed has raised rates significantly, with the target rate now at 5% to 5.25%.

Last month, the Fed paused its rate-hiking cycle for the first time, although officials have indicated that this pause is expected to be temporary, with the possibility of two more rate revisions by the end of the year.

President Joe Biden has highlighted the recent declines in inflation as evidence that his “Bidenomics” agenda is working. However, Republican critics argue that Biden bears some responsibility for the initial surge in inflation due to large infusions of federal spending at the beginning of his presidency.

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Biden has been keen to emphasize the positive aspects of the economy, particularly the robust labor market. Despite showing some signs of softening, the labor market has defied expectations in the face of the Fed’s tightening.

In June, the economy added 209,000 jobs, as reported by the Bureau of Labor Statistics last week. While still strong, this fell below the forecasted expectations of 225,000 and marked the first report in months that came in below the consensus prediction. It also represented the slowest pace of job growth since December 2020.