The recent decline in U.S. wholesale prices in May, reported by the Labor Department, is a significant indicator of easing inflation. This decrease comes in the wake of the Federal Reserve’s decision to maintain interest rates. Specifically, the producer price index (PPI), which is the Fed’s preferred inflation gauge, fell by 0.2% in May, marking the largest drop this year and the most substantial decline since a 0.3% fall in October of the previous year.
Year-over-year, the PPI rose by 2.2% from May 2023. This monthly decline contrasts with Wall Street’s forecast of a 0.1% increase and follows a 0.5% rise in April. The PPI has shown a decrease over the previous month only four times in the past 12 months.
Breaking down the PPI components:
- Final demand for goods fell by 0.8%, the largest decline since a 1.2% drop in October 2023.
- Final demand energy prices saw a significant drop of 4.8%, while food prices slightly decreased by 0.1%.
- The core PPI, excluding food and energy, rose by 0.1%.
In terms of services:
- Final demand services remained unchanged in May after a 0.6% increase in April.
- Within the services sector, the indexes for trade services increased by 0.2%, while services excluding trade, transportation, and warehousing saw a rise of 1%.
- Margins for fuel and lubricants retailing surged by 12.2%, whereas prices for airline passenger services dropped by 4.3%.
This report aligns with the recent consumer price index (CPI) data for May, which also indicated cooler-than-expected inflation, with consumer prices remaining unchanged from the previous month. Following this data, Federal Reserve Chairman Jerome Powell noted that inflation had reduced from a high of 7% to 2.7%, though he emphasized that it remains “still too high.” While the Fed held interest rates steady, Powell hinted that an interest rate cut might be possible by the end of the year.
Overall, these developments suggest a continuing trend of moderating inflation, providing some relief to economic policymakers and consumers alike.