News
Wholesale prices unexpectedly fell 0.2% in May
A measure of wholesale prices unexpectedly declined in May, adding further evidence that inflation is retreating.
O producer price index, an indicator of the prices producers get for their goods and services on the open market, fell 0.2% for the month, the Labor Department’s Bureau of Labor Statistics reported Thursday. This reversed a 0.5% increase in April and compared with the Dow Jones estimate of a 0.1% increase.
Excluding food, energy and commercial services, the PPI was unchanged, compared to expectations for a 0.3% increase.
On an annual basis, the PPI of all items increased by 2.2%.
Stock futures market saw some modest gains following the report, while Treasury yields fell. As morning trading progressed, the Dow Jones Industrial Average lost about 260 points, although the S&P 500 and Nasdaq remained little changed.
Markets hope that the reduction in inflation data will lead the Federal Reserve to reduce interest rates later this year. Although the Fed, in its decision released on Wednesday, reduced its outlook for cuts this year to a reduction of 0.25 percentage points, markets remain hopeful for two.
“May’s CPI and PPI data are supportive of our view that the Fed will cut its key rate later this year,” Bank of America economist Stephen Juneau said in a note. “We see recent inflation data greatly reducing the likelihood that the Fed will have to raise rates, and we see labor market data as an indication that the likelihood of rapid rate cuts is also low.”
The launch comes one day after the BLS reported that the consumer price indexa widely watched inflation indicator that measures what consumers actually pay for goods and services, remained unchanged for the month.
From a wholesale perspective, the PPI was held back by a 0.8% drop in final demand goods prices, which was the biggest drop since October 2023. Within the category, the energy index fell 4.8%. Food prices fell 0.1%.
On the services side, retail margins for fuels and lubricants increased by 12.2%, but this was partially offset by a 4.3% drop in prices for air passenger transport services.
The launch takes place one day after the Federal Reserve noted ‘modest progress’ in bringing inflation back to its 2% target, but not enough for the central bank to start lowering interest rates. The Fed has maintained its benchmark interest rate in a target range of 5.25%-5.5% since July 2023 as it awaits further evidence that inflation is returning to the central bank’s 2% target.
In other economic news on Thursday, the Labor Department reported that initial unemployment insurance claims jumped to 242,000 in the week ending June 8. This is the highest level since August 2023 and an increase of 13,000 from the previous period. Economists consulted by Dow Jones were looking for 225 thousand.
Continuing claims, one week behind, totaled 1.82 million, an increase of 30,000 from the previous week.