Producer prices delivered a sharp headline drop, but the underlying picture is less dramatic.

The Producer Price Index (PPI) fell 0.3% in June, while prices were up 5.5% from a year earlier. Goods prices fell 1.4%, led by energy, while services rose 0.2%. May data for the prior 12 months was revised down from 6.5% to 6.0%.

PPI does not directly measure household inflation, but it provides an early look at some of the costs businesses face before they reach consumers. This is a key differentiator from yesterday’s Consumer Price Index (CPI) report or the Personal Consumption Expenditures (PCE) report that comes out later this month.

Like yesterday’s CPI, gasoline prices did most of the heavy lifting in this PPI report. Renewed tensions in the Middle East have raised oil prices again, which may have already erased the fleeting benefit of the June price improvement.

The June Producer Price Index report provides some evidence that a major source of recent price pressure, energy, was moving in a favorable direction. But the Federal Reserve will focus more heavily on consumer inflation, particularly the Personal Consumption Expenditures measure out on July 30th.

Rising oil prices notwithstanding, a continued increase in service prices means policymakers are unlikely to declare victory based on one favorable producer report. Although this week's reports show the flames of inflation may be dying down, it's worth keeping the fire extinguisher at the ready.