Data on producer prices shows that overall inflation pressure continued to heat up in the economy, as gains in service prices helped to push up. Trucking prices surged again in June, as part of an overall wave of rising transportation costs in the economy.
The Bureau of Labor Statistics reported that the producer price index (PPI) rose 0.3% in June from May’s levels, beating expectations of a 0.2% gain. Year-over-year wholesale inflation rose to 3.4% during the month, marking the fastest pace of producer price increases since 2011.
Gains in the PPI were largely driven by increases in the service sector, which jumped 0.4% during the. The price of goods in the economy rose by just 0.1%, as falling food costs helped to offset increases in other areas of the economy. This month’s data also continued to illustrate the effect that tariffs have had on steel and aluminum prices, which saw large increases in June and are experiencing double digit rates of inflation relative to last year. With the Trump administration implementing additional tariffs in recent weeks, concerns have risen that these types of price increases will become more widespread going forward.
Trucking rates surge ahead again
Details within the transportation industry continued to show large increases in the rates for freight services. General freight trucking posted the second consecutive large gain in June, rising 1.5% from May’s levels. Year-over-year inflation is now nearing 9% in the freight trucking space, as tight capacity and rising demand continue to put upward pressure on rates.
As has been the story throughout most of the year, the biggest gains within the trucking industry have come from long distance services. Both long distance truckload and less-than-truckload rates jumped again in June, with year-over-year growth climbing to 9.4% and 8.8%, respectively. For long distance truckload, this marks the fastest pace of inflation since the oil price spike in the summer of 2008 pushed up freight rates.
In addition, there continues to be evidence that the effects of the trucking capacity crunch are spilling over into other modes of freight transportation. Many of these loads that traditionally travel via truck have been shifted towards slower intermodal services. This has caused a spike in rates among intermodal carriers as well, which are now experiencing 16% inflation year-over-year in June. With demand likely to remain high in upcoming months and capacity rising slowly, expect for high transportation costs to remain an issue throughout the 3rd quarter.
Behind the Numbers:
This morning’s report serves as additional evidence that rising transportation costs continue to be an issue in the economy. After a brief lull in the surge in rates in March and April, trucking rates have reasserted themselves with a vengeance over the past two months. Some of this has been driven by just how strong the 2nd quarter was, where GDP growth looks to fall near the 4% range once it gets released at the end of the month. This will probably pull back in the 3rd quarter, but economic growth is likely to remain solid for the rest of the year. This means that the freight capacity crunch and elevated trucking rates are not likely to go anywhere anytime soon.
We have discussed in the past how the lack of available carriers ultimately is going to become disruptive for overall economic activity. Survey data over the past several months suggests that freight capacity has become a major thorn in the side of producers across the economy, and all signs suggest that this environment will not be changing in the near future.
Ibrahiim Bayaan is FreightWaves’ Chief Economist. He writes regularly on all aspects of the economy and provides context with original research and analytics on freight market trends. Never miss his commentary by subscribing.