US producer prices increased in May as the cost of gasoline and food rose.
According to the Labor Department, the producer-price index (PPI) for final demand in May increased a seasonally adjusted 0.5% from the month before – the biggest increase since September 2012.
Economists, on average, expected PPI to increase by 0.4 percent in May.
The main reason for the increase in PPI last month was mainly due to an increase in energy prices, particularly gasoline – which surged 17 percent last month – and an increase in food prices, with prices up 0.8 percent in May – but still down 3.3% over the year.
Price pressures are limited elsewhere, with a strong dollar keeping the price of goods coming in from overseas down.
In May import prices for automobiles, non-fuel industrial supplies, capital goods, and natural gas all dropped. Capital goods are products and things that create goods or services, or increase productivity.
The volatile trade services component rose 0.6 per cent in May after a 0.8 percent drop in April.
However, it is important to note that compared to last year, overall producer prices are 1.1 percent lower and core prices have only gained 0.6% percent.
In a note to clients, Ian Shepherdson, chief economist at Pantheon Macroeconomics, said:
“It’s clear that underlying price pressures at the producer level, at least for goods, are very low, thanks to slow wage gains, weak materials prices and the strong dollar,”
The US Federal Reserve is keeping an eye on inflation as it considers raising rates – which have been at near zero for over five years.
The Fed is also closely watching the labor market, which is appearing to show robust growth.
According to The US Labor Department, at the end of April the number of open jobs increased by 200,000 to 5.4 million.
