The U.S. Producer Price Index came in more or less as expected, rising 0.1% from may to June, confirming that inflation is no worry for the U.S. Federal Reserve.

“While June’s PPI report was not quite as muted as the surprisingly sharp 0.4% decline reported the preceding month, it nonetheless shows a continuing lack of pricing power in the goods sector,” notes CIBC World Markets. “Also suggesting inflation is not problematic for the Fed or markets, core inflation was still only up 0.3% on the year in June.”

The core rate was boosted by higher drug and auto prices. Although CIBC says that the car price hikes are likely to be reversed in the near term, “given the Big 3 recent upgrading of their incentives to try to staunch slackening sales.”

BMO Nesbitt Burns notes that core intermediate goods prices, which it regards as a key leading indicator, have turned around in recent months, although these costs are still below year-earlier levels. “The recovery in crude goods prices is nothing to worry about. It always happens in a recovery and is never inflationary,” it says.

“Our hope for lower inflation was not centered on more deflation in goods prices. Rather, we look for the traditional first-year-recovery moderation in service price inflation ahead. So, we don’t take the PPI news as a bad inflation signal. It’s pretty tame anyway,” says BMO. “The Fed and the markets will continue to worry more about deflation than inflation. However, it looks like the worst of the deflation danger is passing.”

“Although price hikes for commodities like steel and cotton are beginning to lift some of the upstream gauges, the still benign trend for both the core and headline PPI suggest manufacturers are absorbing cost increases, rather than passing them along,” concludes CIBC. “That’s a good sign for bonds, clearly, but not stocks. Today’s numbers reinforce other signs that inflation remains contained. That includes yesterday’s report that import prices fell for the first time in seven months between May and June.”

CIBC notes that, separately, the U.S. Labor Department reported that the number of first-time unemployment benefit claimants surged by 16,000 to a 6-week high of 403,000 in the period through July 6. “Although the jump in claims seems at first glance to bear out continued sluggishness in labor markets, the numbers were likely skewed by summertime shutdowns for re-tooling at GM and Ford.”