May Headline PPI Declines 0.2%, Core PPI Holds Steady

James Hyerczyk
Published: Jun 13, 2024, 12:47 GMT+00:00

Key Points:

  • May PPI falls by 0.2%, with energy prices dropping 4.8% and final demand goods down 0.8%.
  • Gasoline prices plummet 7.1%, significantly impacting the final demand goods index, offset by a 3.3% rise in cigarette prices.
  • Core PPI, excluding food, energy, and trade services, remains unchanged in May, up 3.2% over the past year.

May Producer Price Index Shows 0.2% Decline

The U.S. Bureau of Labor Statistics has reported a 0.2% decline in the Producer Price Index (PPI) for final demand in May, following a 0.5% increase in April and a 0.1% decrease in March. On an annual basis, the index for final demand increased by 2.2% as of May.

Decline in Final Demand Goods

Final demand goods experienced a significant 0.8% drop in May, the largest decrease since October 2023. This decline was primarily driven by a 4.8% decrease in the index for final demand energy, while final demand foods saw a minor 0.1% decrease. Notably, the index for final demand goods excluding foods and energy rose by 0.3%.

Key Drivers:

  • Gasoline prices fell sharply by 7.1%, accounting for a significant portion of the decline in final demand goods.
  • Other contributing factors included decreases in diesel fuel, chicken eggs, electric power, jet fuel, and basic organic chemicals.
  • On the contrary, cigarette prices increased by 3.3%, along with higher prices for hay, hayseeds, oilseeds, and residual fuels.

Stable Final Demand Services

Prices for final demand services remained unchanged in May, following a 0.6% increase in April. Within this category, the indexes for final demand trade services and services excluding trade, transportation, and warehousing rose by 0.2% and 0.1%, respectively. However, prices for final demand transportation and warehousing services fell by 1.4%.

Product Details:

  • Margins for fuels and lubricants retailing surged by 12.2%.
  • Retail prices for food and alcohol, outpatient care, automobiles and parts, and apparel and accessories saw increases.
  • Conversely, airline passenger service prices dropped by 4.3%, with declines also noted in machinery and vehicle wholesaling, professional and commercial equipment wholesaling, portfolio management, and truck transportation of freight.

Core PPI Insights

The core PPI, which excludes volatile food, energy, and trade services, remained steady in May after a 0.5% increase in April. Over the past 12 months, the core PPI has risen by 3.2%.

Market Impact

The decline in the PPI, especially driven by lower energy costs, suggests potential easing of inflationary pressures. This could influence market sentiment, with investors possibly anticipating a more accommodative stance from policymakers. However, the stability in the core PPI indicates that underlying price pressures remain, which could temper expectations of significant changes in monetary policy.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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