The numbers: Wholesale prices rose a meek 0.1% in May, extending a string of weak readings that suggest inflation in the U.S. is likely to continue to decelerate.
Economists polled by the Wall Street Journal had forecast a 0.2% increase in the producer price index.
Wholesale costs often foretell future inflation trends. The increase in wholesale prices over the past 12 months slowed to 0.1% from 1.1% in the prior month. That’s the lowest reading since September 2020.
A separate measure of wholesale prices that strips out volatile food and energy costs and trade margins also increased 0.1% last month, the government said.
The increase in these so-called core prices over the past year decelerated to 2.6% from 2.8%, marking the smallest increase since March 2021.
The soft readings this week in consumer and wholesale inflation probably won’t stop the Federal Reserve from raising interest rates again in two weeks. The Fed is trying to make sure it snuffs out inflation and brings down prices even faster.
Read: U.S. inflation slows again, CPI shows, as Fed weighs another rate hike
The PPI report captures what companies pay for supplies such as fuel, packaging and so forth. These costs are often passed on to customers at the retail level and give an idea of whether inflation is rising or falling.
Big picture: Wholesale prices have slowed even faster this year than consumer prices, perhaps a sign that inflation will retreat faster than the Fed expected.
Yet it’s going to take several more months of weak inflation readings, at the very least, to persuade the central bank its job is largely done. The Fed manages inflation by raising interest rates and slowing the economy.
The chief risk? A recession. The higher rates go, the more likely that higher borrowing costs would trigger a recession.
Market reaction: Before the report, the Dow Jones Industrial Average
DJIA,
and S&P 500
SPX,
were set to open higher in Thursday trades. The yield on the 10-year Treasury note
TMUBMUSD10Y,
slipped to 3.84%.
This post was originally published on Market Watch
