U.S. Producer Prices Dip More Than Expected In May, Annual Growth Extends Slowdown

Producer prices in the U.S. decreased by more than expected in the month of May, according to a report released by the Labor Department on Wednesday.

The Labor Department said its producer price index for final demand fell by 0.3 percent in May after inching up by 0.2 percent in April. Economists had expected producer prices to edge down by 0.1 percent.

The report also showed the annual rate of producer price growth slowed to 1.1 percent in May from 2.3 percent in April. The rate of growth was expected to decelerate to 1.5 percent.

The bigger than expected monthly decline in producer prices was partly due to a steep drop in energy prices, which plunged by 6.8 percent in May after climbing by 0.8 percent in April.

The report showed food prices also tumbled by 1.3 percent in May after falling by 0.4 percent in the previous month.

Meanwhile, the Labor Department said prices for final demand services crept up by 0.2 percent in May after rising by 0.3 percent in April.

The uptick in services prices came as prices for trade services jumped by 1.0 percent, offsetting a 1.4 percent slump in prices for transportation and warehousing services.

Excluding prices for food, energy and trade services, core producer prices were unchanged in May after inching up by 0.1 percent in April.

The annual rate of growth by core producer prices slowed to 2.8 percent in May from 3.3 percent in April.

“With yesterday’s CPI report firming expectations for a June rate pause, the May PPI today is more important as a signal for future consumer goods disinflation than as a factor driving the FOMC decision this afternoon,” said Will Compernolle, Macro Strategist at FHN Financial.

He added, “Core services prices (especially the ‘supercore’ that excludes shelter prices) remain the Fed’s underlying inflation worry and are less connected to PPI movements than consumer core goods prices.”

On Tuesday, the Labor Department’s released a separate report showing consumer prices edged slightly higher in the month of May.

The report said the consumer price index inched up by 0.1 percent in May after climbing by 0.4 percent in April. Economists had expected prices to tick up by 0.2 percent.

Excluding food and energy prices, core consumer prices rose by 0.4 percent in May, matching the increase seen in each of the two previous months as well as economist estimates.

The Labor Department also said the annual rate of consumer price growth slowed to 4.0 percent in May from 4.9 percent in April. Economists had expected the pace of growth to slow to 4.1.

The year-over-year growth in May marked the smallest annual increase since the period ending March 2021.

The annual rate of core consumer price growth also slowed to 5.3 percent in May from 5.5 percent in April, in line with expectations.

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