Final Demand Prices Drop, Services Show Modest Growth

Highlights

• Producer Price Index for final demand dropped by 0.3% in May.
• Final demand goods experienced a significant decline, while services recorded a modest increase.
• Prices for final demand excluding foods, energy, and trade services remained unchanged in May.

Producer Price Index Declines, Indicating Lower Prices

The latest report from the U.S. Bureau of Labor Statistics reveals that the Producer Price Index for final demand experienced a decline of 0.3 percent in May, indicating a decrease in overall prices. This follows a 0.2 percent increase in April and a 0.4 percent decrease in March. Over the course of the 12 months ending in May, the index for final demand saw a modest rise of 1.1 percent on an unadjusted basis.

Falling prices for final demand goods drive drop in May’s final demand index, with a significant decline of 1.6 percent, while final demand services record a modest increase of 0.2 percent.

Prices for final demand, excluding foods, energy, and trade services, remained unchanged in May.  They were off by 0.1 percent in April. However, the index for final demand, excluding these categories, showed a notable growth of 2.8 percent over the 12-month period ending in May.

Pre-report estimates had predicted a 0.2 percent Core PPI reading and a -0.1 percent PPI reading, indicating a higher expectation for price stability.

Taking a closer look at the breakdown of final demand goods, it is evident that the decline in May was mainly driven by the energy sector, which witnessed a substantial drop of 6.8 percent. Additionally, prices for final demand foods also declined by 1.3 percent. However, the index for final demand goods, excluding foods and energy, experienced a slight increase of 0.1 percent.

Drop in Gasoline Prices Drives PPI Lower

Analyzing specific products in final demand goods reveals a significant decline in May. Gasoline prices decreased by 13.8 percent. Other products like diesel fuel, chicken eggs, jet fuel, fresh and dry vegetables, and iron and steel scrap also decreased. In contrast, tobacco product prices rose by 1.7 percent. Electric power and beverages and beverage materials saw increases in their indexes.

Regarding final demand services, the index showed a 0.2 percent increase in May, following a 0.3 percent advance in April. Notably, margins for final demand trade services rose by 1.0 percent, contributing to the overall increase. Conversely, the index for final demand transportation and warehousing services experienced a decline of 1.4 percent.

Auto Retail Margins Drive Demand

Analyzing the product details within final demand services, it is worth noting that over 40 percent of the May increase can be attributed to rising margins for automobiles and automobile parts retailing, which saw a significant rise of 4.2 percent. Conversely, prices for truck transportation of freight fell by 2.1 percent. The indexes for portfolio management and health, beauty, and optical goods retailing also recorded decreases.

PPI Report:  Energy Sector Biggest Influence

In conclusion, the recent U.S. Producer Price Index report suggests a decline in prices for final demand goods in May, driven primarily by the energy sector. However, final demand services experienced a modest increase during the same period. These trends, along with the performance of specific product categories, indicate a dynamic and evolving market.