US wholesale prices fell in May, another sign that inflationary pressures are cooling

WASHINGTON – Wholesale price increases fell in May, the latest sign that inflationary pressures in the United States may be easing as the Federal Reserve considers a timetable for cutting interest rates.

The Labor Department reported Thursday that its producer price index — which tracks inflation before it reaches consumers — fell 0.2% from April to May, after rising 0.5% the previous month, driven by a 7.1% drop in gasoline prices. Overall, it was the biggest drop in producer prices since October.

Measured year-on-year, wholesale prices rose 2.2% last month, slowing from the 2.3% increase in April. Excluding volatile food and energy prices, so-called base producer prices remained unchanged from April and increased by 2.3% from May 2023.

Wholesale food prices fell 0.1% from April to May. Egg prices fell by 35%. IT and computer equipment fell by 1.2% and the prices of household appliances fell by 0.5%.

The producer price index can provide an early reading on the direction of consumer inflation. Economists also watch it because some of its components, including some health care and financial services costs, are used to compile the Fed’s preferred inflation gauge, known as the personal consumption expenditures price index.

The wholesale numbers were released a day after the Labor Department reported that consumer inflation decreased in May for the second consecutive month. Core consumer prices rose 0.2% from April to May, the smallest increase since October. And compared to May 2023, underlying prices rose 3.4%, the slightest increase in three years.

Consumer inflation peaked at 9.1% two years ago, but fell as the Fed raised its benchmark interest rate 11 times in 2022 and 2023, reaching a 23-year high. Still, it remains above the Fed’s 2% target.

However, combined with Wednesday’s more subdued consumer inflation report, Thursday’s wholesale data offered an encouraging sign that the price acceleration that occurred earlier this year may have passed.

After closing its last political meeting on Wednesday, the Fed said it was leaving its benchmark rate unchanged and that it expects to make just one rate cut this year, down from its previous forecast of three cuts in 2024.

Even as inflation moderates, essential goods such as food, rent and health care are much more expensive than they were three years ago – a continuing source of public discontent and a political threat to President Joe Biden’s re-election bid.

However, despite persistent inflationary pressures and higher financing costs, the US economy remains resilient. Companies are hiring. Unemployment remains low, providing Americans with unusual job security. The World Bank has just updated its forecast for US economic growth this year from 1.6% to 2.5% – a margin so large that it raised the bank’s prospects for the entire global economy.