U.S. Producer Prices came in stronger on the headline, but core prices continued to weaken, suggesting the recovery isn’t too lively yet.

The Producer Price Index for Finished Goods advanced 0.5% in June, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today.

The headline gains came as both gasoline and natural gas prices jumped in the month, but the core rate was down 0.1%.

BMO Nesbitt Burns says that the drop in the core rate was concentrated in auto and light truck categories, “which probably were hit by temporary inventory clearing price cuts a little earlier than usual this year”.

“Intermediate- and crude-goods prices have tapered off lately, suggesting less pass through of import price hikes from the weak U.S. dollar than we had expected,” Nesbitt says.

“Producer prices signal pricing trends coming down the pipeline for consumers and this release says price trends remain subdued, but not deflationary, an environment that leaves the Fed on hold well into next year,” says RBC Financial.

It also notes that U.S. trade data doesn’t appear to be signaling a robust recovery either. “Market-watchers have their eyes peeled for signs that the fall in the dollar is revitalizing U.S. exports and reinvigorating the manufacturing sector. Today’s release of May U.S. trade data suggests this process will be slow and drawn out, particularly with the world economy still sluggish,” it says.

The U.S. trade deficit came in at US$41.8 billion. This was a little wider than expected, but RBC says that is offset by a downward revision to April from US$42 to US$41.6 billion. It notes that exports rose 0.9% in May, slightly higher than the 0.7% rise in imports.

“Given established trade patterns and the presence of contracts, etc., the trade deficit is not going to remedy itself in the space of months, but rather years,” RBC says. “This suggests a significant trade deficit will persist for some time, eventually renewing the downward pressure on the dollar. This week’s gains in the dollar reflect the market’s realization that third quarter growth will be fairly healthy (3-4%), but longer-term the imbalances caused by the twin current account and budget deficits will reassert their downward pull on the dollar against most major world currencies.”