US Producer Prices Flat to Unchanged, Services Costs Rise

US Producer Prices Flat to Unchanged, Services Costs Rise

US Producer Prices Flat to Unchanged, Services Costs Rise

US producer prices were flat to unchanged in May as energy costs recorded their biggest decliner in more than a year, suggesting a moderation in inflation after a rise at the start of the year.

Inflation at the factory gate remains supported by sustained increases in the cost of services as well as a softening USD, which is lifting prices of some imported goods.

Inflation down at the producer level of the economy’s factory-to-consumer supply chain remains on the warm side, which is in keeping with the economy moving beyond full employment.

The US Labor Department said Tuesday that May’s unchanged reading in its producer price index for final demand followed a 0.5% jump in April.

In the 12 months through May the PPI increased 2.4%, retreating from April’s 2.5% spike, which was the biggest yearly increase since February 2012. May’s inflation readings were broadly in line with economists’ expectations.

A Key gauge of underlying producer price pressures that excludes food, energy and trade services fell 0.1% last month, the 1st decliner in a year. The core PPI rose 0.7% in April. The core PPI increased 2.1% in the 12 months through May after a similar gain in April.

Fed officials started a 2-day policy meeting later Tuesday. The US central bank is expected to raise interest rates Wednesday and offer details on plans to trim its $4.5-T balance sheet.

The Fed has a 2% inflation target and tracks a measure that is currently at 1.5%. It raised its benchmark overnight interest rate by 25 bpts in March.

Many US economists believe further monetary policy tightening this year will hinge on the inflation outlook.

Prices of US government debt were unch Tuesday, while the USD slipped Vs peers. US stocks rose, with the DJIA hitting a record high as bank stocks advanced in anticipation of a rate hike.

Energy prices fell 3.0% last month, the biggest decline since February 2016, after rising 0.8% in April. The cost of gasoline declined 11.2% in May, which was also the largest decline since February of last year.

As a result, the cost of goods fell 0.5%, reversing April’s 0.5% increase.

But prices for services rose 0.3% last month, driven by a 1.1% rise in the index for final demand trade services, which measures changes in margins received by wholesalers and retailers.

Services increased 2.1% in the 12 months through May, the largest gainer since December 2014.

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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