In a boon to the Fed’s inflation-fighting efforts, pipeline price pressures abated more than expected in May, data released just hours ahead of the June FOMC decision showed.
Producer prices for final demand fell 0.3% from April, the BLS said. That matched the lowest estimate from nearly five-dozen economists. Consensus expected a 0.1% drop.
May’s monthly decline was the third in four.
The data came on the heels of May’s CPI report which, while consistent with the Fed’s plans to take a one-month break from rate increases, nevertheless underscored the contention that restoring core inflation to acceptable levels will be a long battle.
The PPI figures were perhaps more encouraging to the extent they can be considered a leading indicator. Excluding food and energy, PPI prices rose 0.2% MoM in May, Tuesday’s data showed. That was in line with estimates. The ex-trade services print was unchanged on a MoM basis.
On the goods side, the largest monthly decline in 10 months was attributable mostly to energy, and specifically to a near 14% decrease on the gasoline index. Services prices moved up 0.2%.
The YoY increase on the headline gauge was just 1.1%, the lowest since December of 2020.
The simple read-through is that consumer prices will follow in fairly short order. Fingers crossed.
I don’t see much utility in breathlessly editorializing around the data. The bottom line is that if you thought May’s CPI report evidenced cooling inflation, the PPI figures support the case.
Soft landing intact. Chair Powell has aces in the pocket and now is in a position to play them when and if he needs to.