US producer prices post another solid rise
Trade tension, slowing growth and drop in hiring fuel market expectations of two rate cuts by year's end
Washington – US producer prices rose solidly in May for a second month running, boosted by a surge in the cost of hotel accommodation and gains in a range of other services, pointing to a steady pickup in underlying inflation pressures.
The labour department said on Tuesday that producer prices excluding food, energy and trade services rose 0.4% last month, matching April’s gain. The core producer price index (PPI) rose 2.3% in the 12 months through May after rising 2.2% in April.
Weaker energy and food prices, however, partially offset the increase in services last month. That led to the producer price index for final demand to edge up 0.1% in May after gaining 0.2% in April. In the 12 months to end-May, the PPI climbed 1.8%, slowing from April’s 2.2% advance.
Economists polled by Reuters had forecast the PPI would nudge up 0.1% in May and rise 2.0% year on year.
The steady rise in underlying producer prices probably supports the Federal Reserve’s view that the weak inflation readings are probably transitory.
The Fed’s preferred inflation measure, the core personal consumption expenditures price index, rose 1.6% in the year to April after gaining 1.5% in March.
Mounting trade tension, slowing growth and a sharp fall in hiring in May led financial markets to price in at least two US Fed interest-rate cuts by year's end.
Fed chair Jerome Powell said last week that the US central bank was closely monitoring the economic implications of trade tension and would “act as appropriate to sustain the expansion”. Fed policymakers are expected to keep rates unchanged at their June 18-19 meeting.
In May, wholesale energy prices fell 1.0% in May after rising 1.8% in the prior month. Goods prices slipped 0.2% last month after gaining 0.3% in April.
Wholesale food prices dropped 0.3% in May. Core goods prices were unchanged for a second straight month. Prices for hotel accommodation surged 10.1% in May, the most since April 2009. That accounted for nearly 80% of the increase in services prices last month. Services prices rose 0.3% after gaining 0.1% in April.
The cost of healthcare services rose 0.2% last month after increasing 0.3% in April. Those healthcare costs feed into the core PCE price index. There were also increases in prices for passenger transportation and portfolio management.