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Slowdown in US Wholesale Prices Increase in May Raises Hope of Overall Price Drop
Potential decrease in retail inflation expected to guide Federal Reserve interest rate decision
A lower-than expected increase in U.S. wholesale prices in May has raised hopes for a Federal Reserve move to cut interest rates which President Donald Trump has been demanding. The Bureau of Labor Statistics has reported 0.1% increase in Producer Price Index (PPI) last month. The index had slightly decreased in April and March by 0.1% and 0.2% respectively.
Federal Reserve chair Jerome Powell has been resisting Trump demand for lowering interest rates saying the target of 2% annual inflation is still elusive. The annual inflation rate is still hovering over 3%. If the inflation growth rate drops into negative territory or get close to it the Fed Reserve authorities may show an increased appetite for an interest rate cut. Trump has sought a rate cut to spur economic growth that is threatened by the tariff war that he has unleashed. Global trade has seen an unprecedented tumult as Washington has taken up bilateral talks with economies forcing businesses to keep their expansion plans on the backburner.
The BLS report adds: Prices for final demand less foods, energy, and trade services edged up 0.1% in May after falling 0.1% in April. For the 12 months ended in May, the index for final demand less foods, energy, and trade services increased 2.7%.
Final Demand
Final demand services: The index for final demand services inched up 0.1% in May following a 0.4-percent decrease in April. The advance is attributable to a 0.4-percent rise in margins for final demand trade services. (Trade indexes measure changes in margins received by wholesalers and retailers.) In contrast, prices for final demand transportation and warehousing services declined 0.2%, while the index for final demand services less trade, transportation, and warehousing was unchanged.
Final demand goods
Prices for final demand goods rose 0.2% in May after edging up 0.1% in April. Over 80% of the May advance can be traced to the index for final demand goods less foods and energy, which climbed 0.2%. Prices for final demand foods increased 0.1%, while the index for final demand energy was unchanged.
Within intermediate demand in May, the index for processed goods edged up 0.1%, prices for unprocessed goods fell 1.6%, and the index for services rose 0.1%.
Processed goods for intermediate demand
Prices for processed goods for intermediate demand inched up 0.1% in May following a 0.3-percent rise in April. Leading the May increase, the index for processed materials less foods and energy advanced 0.4%. Prices for processed foods and feeds moved up 0.5%. Conversely, the index for processed energy goods declined 1.2%. For the 12 months ended in May, prices for processed goods for intermediate demand advanced 1.9%, the largest 12-month increase since rising 2.1% in February 2023.
Unprocessed goods for intermediate demand
Prices for unprocessed goods for intermediate demand fell 1.6% in May, the third consecutive decline. More than three-quarters of the May decrease is attributable to the index for unprocessed energy materials, which dropped 3.5%. Prices for unprocessed nonfood materials less energy fell 1.4%. Conversely, the index for unprocessed foodstuffs and feedstuffs edged up 0.1%. For the 12 months ended in May, prices for unprocessed goods for intermediate demand declined 1.0%, the first 12-month decrease since falling 2.2% in November 2024.
Services for intermediate demand: The index for services for intermediate demand edged up 0.1% in May after declining 0.3% in April. The increase can be attributed to a 0.7-percent advance in margins for trade services for intermediate demand. Conversely, the indexes for services less trade, transportation, and warehousing for intermediate demand and for transportation and warehousing services for intermediate demand both decreased 0.1%. For the 12 months ended in May, prices for services for intermediate demand rose 1.9%.
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