Average prices charged by factories for their goods fell worldwide for a third month in a row in July, according to the JPMorgan Global Manufacturing Purchasing Managers' Index™ (PMI™) compiled by S&P Global. However, the rate of decline moderated, as deflationary forces from falling raw material and energy costs, as well as weaker demand-pull forces, were partially countered by increasingly elevated wage pressures. The data therefore hints at some stubborn stickiness of core inflation globally.

Factories cut prices at slower rate

Manufacturing output prices - average charges levied for goods leaving the factory gate - fell worldwide for a third month running in July, according to the latest PMI surveys compiled by S&P Global. The declines represent a marked reversal of the inflation trend, with the survey having witnessed record increases in factory selling prices just over a year ago.

However, the rate of decline moderated slightly. Having fallen in nearly all months post printing a record-high in April 2022, the global PMI's Prices Charged Index edged up from 49.2 in June to 49.6. This slowing in the rate of price deflation signaled by the index reflected a similar cooling in the rate of deflation in producers' input costs. While costs fell likewise for a third straight month in July, the fall was smaller than that recorded in June.

Although the eurozone saw output prices fall at an increased pace, rates were unchanged in the US, UK and Japan, and the rate of inflation picked up in Canada The rate of deflation meanwhile eased in mainland China.

While the main message from the PMIs is that manufacturing prices continued to fall at the start of the third quarter, the overall cooling in the rate of decline and signs of 'stickiness' in some economies will be of some concern to policymakers around the world, especially as the slower rate of deflation could be largely attributed to higher wage costs.

Wages pressures limit price decline

Analysis of the reasons provided by survey contributors to the change in prices reveals the extent to which downwards pressure on prices from lower raw materials and energy costs, and falling demand, are being countered by increased wage pressures.

While raw material costs, energy and demand pressures are all running below their long run averages (an average which extends back to 2005), wage growth is acting as an increasingly elevated driver of higher selling prices, running at over six-times the long-run average in terms of its impact on prices worldwide. Since data were first available in 2005, only the May-to-July period of 2022 has seen stronger upward wage pressures on goods prices.

Mixed price trends

Of the 31 economies for which S&P Global manufacturing PMI data are available, selling prices fell in 19 cases during July, albeit in some instances only marginally, and rose in only 11.

The steepest declines were generally seen in Europe, with Austria recording the sharpest decline, though sharp falls were also recorded in Brazil, Taiwan and Vietnam. Notable declines were also seen in mainland China and the UK, albeit the former reported a slowing rate of deflation and the UK saw only a marginal fall at a rate unchanged from June.

US prices were largely unchanged for a second month in a row, but prices in Canada rose at the fastest rate since April.

Output prices meanwhile rose at steep and increased rates in Turkey, Russia and Japan, and a strong rate of inflation was also seen in India.

Chris Williamson, Chief Business Economist, S&P Global Market Intelligence

Tel: +44 207 260 2329

chris.williamson@spglobal.com

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Purchasing Managers' Index™ (PMI^®) data are compiled by S&P Global for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.