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Important inflation targets slow down a bit, but are still uncomfortably high

The producer price index, which measures wholesale prices before goods and services reach consumers, rose 10.8% in May compared to where it was a year ago, according to data released on Tuesday by the Bureau of Labor Statistics.

Although down from the revised 10.9% increase reported in April, it is still high by historical standards. The PPI had not registered a double-digit increase in data back to 2009 until last December.

“The relentless rise in manufacturers’ costs signals that consumers will find little respite from inflation in the coming months as these costs are passed on,” said Kurt Rankin, senior economist at PNC.

While PPIs measure wholesale prices, not end-user prices paid by consumers, they have a potential effect on both consumers and the general economy.

“This wholesale price pressure must continue to work its way through the supply chain and will either be passed on to the rest of us or eaten up by the company̵[ads1]7;s profit margins – or a likely combination of both,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group.

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With the removal of volatile foods and energy, the so-called core PPI showed an increase of 8.3% over the last 12 months, compared to the revised increase of 8.6% in this value for April.

Much of the increase was due to high energy prices. Wholesale energy prices were up 5% in May compared to April, and up 44.6% over the last 12 months.
A monthly increase of 8.4% in wholesale petrol prices in May resulted in a 66.2% increase in petrol during the year. The national average for a gallon of retail gasoline reached $ 5 for the first time ever this weekend, according to figures from AAA.
The good news for consumers is that wholesale food prices did not show any monthly increase, despite rising retail prices for these goods. Wholesale food prices are still up 13.3% over the last 12 months, and retail prices for food bought at home had an increase of 1.4% in one month in May and an increase of 11.9% in the last 12 months , according to a previous Reading by the Ministry of Labor.
Another sign of improvement was a monthly increase of only 0.4% in wholesale prices for cars and trucks, after a 1% increase on this basis in April. But automakers, whose production was limited by a lack of computer chips, are finally getting production back to pre-pandemic levels, said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

“On a month-over-month basis, we see encouraging signs in the margin,” Shepherdson said.

Tuesday’s PPI report comes after the latest Consumer Price Index report, which showed the fastest price increases for consumers in more than 40 years. Taken together, these reports are likely to put further pressure on the Federal Reserve to raise interest rates more aggressively to combat inflationary pressures.
Inflation is rising at the fastest pace in 40 years, pushed up by record high gas prices
The central bank raised its reference rate by half a percentage point in May for the first time since 2000. It will begin a two-day monetary policy meeting on Tuesday, and may announce a rise of three quarters of a percentage point at the close of its central bank. meet Wednesday. That would be the biggest jump in that policy rate since 1994.

However, some economists question whether the Fed can really do much to curb inflation, given the rise in energy prices caused by the war in Ukraine and the sanctions against Russia’s oil exports, as well as continued supply chain problems.

“The Fed’s blunt toolkit will not do much to alleviate supply-side disruptions,” reads a note from Oxford Economics. “As such, the risk of producer price inflation remains on the upside in the short term, and any sustained moderation will only come gradually during the second half of 2022.”

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