US producer inflation subsides as energy and food prices fall

WASHINGTON, June 14 (Reuters) – U.S. producer prices fell more than expected in May as energy and food commodity costs fell, suggesting that inflation pressures are easing across the economy and could eventually provide relief to consumers.

The report released by the Labor Department on Wednesday also showed that the annual increase in producer inflation last month was the smallest in about two and a half years. Core product prices were muted. It followed data on Tuesday showing consumer prices rose in May, with the smallest year-over-year rise since March 2021.

The Federal Reserve kept interest rates unchanged on Wednesday for the first time since March 2022 when the US central bank embarked on its fastest monetary tightening campaign in more than 40 years.

The Fed, which raised its policy rate by 500 basis points in this tightening cycle, indicated in its New Economic Outlook that borrowing costs will likely rise by another half percentage point by the end of this year due to the resilience of the economy, particularly the labor market.

“There aren’t a lot of factory price increases in the pipeline waiting to ambush consumers and that brings relief to the inflation-weary American public,” said Christopher Rupke, chief economist at FWDBONDS in New York.

“Inflation is not over yet and it is wreaking havoc on the economy so far, but we can see the day coming where inflation will come down to manageable levels after the pandemic demand has completely dissipated.”

The producer price index for final demand fell 0.3% last month after rising by an unadjusted 0.2% in April. The producer price index has now fallen in three of the past five months. The decline in commodity prices by 1.6%, the largest decline since last July, led to a large part of the decline in the producer price index.

Commodity prices, which rose 0.2% in April, were lower last month due to a 6.8% drop in energy prices. Gasoline prices fell by 13.8%, accounting for 60% of the decline in commodity prices. Food prices fell 1.3%, declining for the second month in a row as the cost of eggs and vegetables fell.

Food commodity prices have fallen back to the levels they were before the Russian invasion of Ukraine in February 2022.

The cost of services rose 0.2% after rising 0.3% in April, driven by margins on auto and parts sales. There were also increases in the retail sale of fuels and lubricants as well as the retail sale of clothing, footwear and accessories.

Fees for securities brokerage, dealing, investment advisory and related services rose. But the cost of moving goods by road fell 2.1% and portfolio management fees fell 2.9%. Airline ticket prices decreased by 1.1%.

These services components feed into the personal consumption expenditures (PCE) price indices calculation, which are measures of inflation that the Federal Reserve tracks for the 2% target.

In the twelve months through May, the producer price index increased by 1.1%. This was the smallest year-on-year rise since December 2020 and followed a 2.3% increase in April.

Inflation subsides as supply chain bottlenecks disappear and demand for goods slows in response to higher borrowing costs. The surge in prices last year also stopped accounting for annual inflation.

Economists polled by Reuters had expected the PPI to decline 0.1 percent from the previous month and rise 1.5 percent year-on-year.

flexibility of the economy

Stocks on Wall Street fell after the Fed’s interest rate decision and forecasts. The dollar cut its losses against a basket of currencies. Short-term US Treasury yields rose.

Excluding the volatile food and energy components, so-called commodity prices rose 0.1% last month, matching April’s gains. This supports expectations that the economy may go through a period of declining inflation in consumer goods, if not outright deflation. But some economists were skeptical.

“We will continue to watch commodity prices for signs that the easing of input costs can carry over into lower prices, although this may be unlikely as consumers are accustomed to higher price levels,” said Veronica Clark, an economist at Citigroup in New York. . .

The narrower measure of the core PPI, which excludes the food, energy and business services components, was unchanged after rising 0.1% in April. In the 12 months through May, the core PPI rose 2.8%, the smallest gain since February 2021, after rising 3.3% in April.

With CPI and PPI data in hand, economists estimated that the core PCE price index rose 0.3% in May after rising 0.4% in April. The core PCE price index was expected to advance 4.6% yoy in May after advancing 4.7% in April.

The data will be published at the end of the month. Fed officials on Wednesday raised their forecast for core inflation for personal consumption expenditures for this year to 3.9% from the 3.6% expected in March.

“Inflation has come down somewhat since the middle of last year,” Federal Reserve Chairman Jerome Powell told reporters. “However, inflation pressures continue to rise and the process of bringing inflation back to 2% continues.”

(Reporting by Lucia Moticani) Editing by Chizu Nomiyama and Andrea Ricci

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