Inflation at the wholesale level fell more than expected in May, the latest sign that painfully high consumer prices are beginning to loosen their stranglehold on the U.S. economy in the face of higher interest rates.
The Labor Department said Wednesday that its producer price index, which measures inflation at the wholesale level before it reaches consumers, tumbled 0.3% in May from the previous month. On an annual basis, prices are up 1.1% – the lowest rate since December 2020.
Those figures are both lower than the 1.5% headline figure and 0.1% monthly decline forecast by Refinitiv economists.
There are still signs of inflationary pressures in the economy, however.
THE HOUSING RECESSION ISN’T OVER YET
Excluding the more volatile measurements of food and energy, so-called core inflation is still running far hotter than the pre-pandemic average. Core prices are up 2.8% from the same time last year, although they were flat in the period from April to May.
And the services index climbed 0.2% in May following a 0.3% gain the previous month, the Labor Department said in the report. Most of that increase can be traced to a 1% rise in prices for trade services, which measures the changes in margins received by wholesalers and retailers.
INFLATION BREAKDOWN: HIGH RENT, FOOD PRICES REMAIN UNCOMFORTABLY HIGH IN MAY
The data comes a day after the Labor Department reported that the consumer price index, which measures the prices paid directly by consumers, rose just 0.1% in May. The annual inflation rate came in slightly lower than expected at 4% – the slowest pace since March 2021.
Both releases are considered to be important measurements of inflation, with the PPI believed to be a leading indicator of inflationary pressures as costs work their way down to consumers. The different gauges point to inflation that is rapidly declining, although the CPI is still running well above the Fed’s preferred 2% target.
The Federal Reserve has raised interest rates 10 straight times over the past 15 months in a bid to crush out-of-control inflation.
The slowdown in inflation likely gives policymakers additional fodder to forgo another interest rate increase at the conclusion of their two-day meeting on Wednesday. An overwhelming percentage of traders – more than 90% – now anticipate the Fed will pause the tightening cycle, a notable shift from the beginning of the week, according to the CME Group’s FedWatch tool.
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