Producer prices rose in May by 0.1% as expected according to a Labor Department report released on Tuesday, spurred on by a boom in the cost of hotel accommodation and other services. The data points to increased inflation pressures, and indicates that the economy is continuing its strong period of expansion.
- The producer price index (PPI) rose 0.1% as expected vs. 0.2% last month.
- Core-PPI excluding the volatile components of food and energy rose 0.4%.
Producer prices directly impact consumer prices, thus affecting inflation. The latest data points to inflation pressure emerging from the month of May. This supports the Fed view that tame inflation pressures were merely transitory.
The Fed’s preferred gauge of inflation, the core-PCE index, rose 1.6% in April vs. 1.5% in March. The Fed has stated that officials will monitor economic conditions in case a rate cut is needed, although no cuts expected as a result of the upcoming Fed meeting on June 18-19.
The disinflation argument holds almost no water after two straight 0.4% m/m increases in the PPI for final demand less foods, energy, and trade services. Now at +2.3% y/y, this "true core" measure of wholesale inflation has not been below the Fed's 2% objective since July 2017. pic.twitter.com/PGRcB2Xxcf
— Jeoff Hall (@JeoffHall) June 11, 2019
May saw a 0.4% gain in producer prices excluding food, energy and trade. Weakness in those volatile components led the final PPI to see a shortfall in monthly growth between April and May, while the main gains came from growth in hotel accommodation and other services.
Annually, the PPI came in at 1.8% vs. 2.2% in April. Analysts had predicted a 2% annual gain. Core-PP rose 2.3% annually after a 2.3% gain in the 12 months through April.
Wholesale energy prices dropped 1% in May after 1.8% growth the month before. The cost of goods fell from 0.3% to 0.2%. Wholesale food prices dipped dropped 0.3%, and core goods prices were unchanged. Hotel accommodation hit a 10-year high with a 10.1% increase in May, accounting for nearly 80% of the increases in services which rose 0.3% overall. Healthcare services rose 0.2%, down from 0.3%. Passenger transportation and portfolio management also saw price gains.
Spot gold prices have dipped following the report, last trading at $1,324.44/oz and down -0.02% with a high of $1,330.03/oz and a low of $1,320.09/oz. While the report, which indicates solid inflation pressure, may be inherently bullish for gold, a global stock market recovery has undoubtedly contributed to selling pressure today.