The Number and the Asterisk
The Producer Price Index for final demand fell 0.3% in June, the Bureau of Labor Statistics reported this morning. Economists had looked for roughly no change. Prices had risen 0.6% in May and 1.1% in April, so the reversal is real. Over the twelve months through June, final demand is up 5.5%.
Then you open the release and find the whole thing sitting in one line.
Final demand goods fell 1.4%, the largest decline since a 1.9% drop in July 2022. Energy prices fell 6.4%. Gasoline alone fell 12.0% and accounts for nearly two-thirds of the goods decline. Food prices fell 0.6%. Goods excluding food and energy rose 0.2%.
That is not disinflation. That is a fuel line item.
Strip the Gas Out and the Picture Inverts
The measure that removes the noise is final demand less foods, energy, and trade services. It rose 0.1% in June after jumping 0.8% in May. Over the last twelve months it is up 5.1%.
Hold that next to the consumer side. June core CPI ran at 2.6%. Headline CPI ran at 3.5%.
So the price of what suppliers charge is climbing at 5.1% a year. The price of what stores charge you is climbing at 2.6%. That is a gap of roughly two and a half points, and it has to land somewhere.
It lands on margins. That is the whole story of this print, and it is the opposite of the one the headline number tells.
Second-quarter earnings season is where it stops being a chart and starts being guidance. A company facing 5% input inflation while raising prices 2.6% is not in a stable position. It either finds the pricing power, cuts costs, or gives up the spread.
The One Place Somebody Kept the Money
Final demand services rose 0.2% in June. More than 60% of that came from margins on final demand trade services, which rose 0.4%. Trade indexes measure the margins wholesalers and retailers keep, not the prices they pay.
Now the detail worth the whole release. Half of the June increase in services traces to margins for fuels and lubricants retailing, which jumped 13.0%.
Read that against what fuel cost them. Further up the chain, crude petroleum fell 12.1% and diesel fell 18.0% in June. Gasoline at final demand fell 12.0%. Fuel retailers bought dramatically cheaper product and did not hand all of it to the pump. They kept a chunk. In a single month, that is the clearest picture of pricing power in the entire economy, and it belongs to gas stations.
Murphy USA is the cleanest listed version of that. It runs on a net profit margin of 2.81%, so fuel margin is not one input among many, it is close to the whole business. The stock trades near 20 times earnings and 12.1 times EBITDA with a market value around $11 billion, and pays a dividend yield near 0.4%. It was down about 2% at midday near $598.56.
Casey's General Stores is the higher-multiple cousin, at roughly 42 times earnings and 23.6 times EBITDA, with a 4.07% net margin and a market value near $30 billion. It was down about 3% at midday.
Both are lower today. The market is not treating one month of fat fuel margins as a thesis, and it is probably right not to. Fuel margins widen fastest exactly when crude is falling, which is not a permanent condition.
The Pipeline Behind the Headline Is Not Cooling
The stages that feed future finished goods look nothing like a 0.3% decline.
Services for intermediate demand rose 0.3% in June and are up 5.0% over twelve months, the largest such increase since a 6.2% reading in February 2023. Processed goods for intermediate demand are up 11.1% over twelve months. Loan services rose 5.7% in the month.
Costs deeper in the chain are still building. What fell in June was the one input that trades on a screen every day and reprices in hours.
What to Watch From Here
The tell arrives with Q2 guidance over the next four weeks. If the two-and-a-half-point wedge is real, it shows up as margin commentary, not as a data release.
Watch fuel retail margins specifically, because a 13% one-month jump either normalizes fast or turns into a genuine earnings surprise for a group with almost no cushion. And watch whether wholesalers keep giving ground the way machinery and vehicle wholesaling did in June, where margins fell 8.4%. When the people in the middle stop holding their spread, the squeeze has moved downstream.
The next producer price report lands August 13.
