Another positive sign for consumers: Wholesale inflation ticked down last month

By Elisabeth Buchwald, CNN

New York (CNN) — Americans and the Federal Reserve have another positive development to celebrate: More evidence that price pressures are fading.

Wholesale inflation cooled significantly in May, with prices down 0.2% from April’s 0.5% increase, according to data the Bureau of Labor Statistics released Thursday. Economists polled by FactSet had anticipated a 0.1% rise in monthly wholesale inflation. A 4.8% in energy prices last month was a major contributor to falling overall wholesale prices.

The Producer Price Index, which measures the change in prices that manufacturers pay to suppliers, rose 2.2% for the 12 months ended in May, matching April’s increase. FactSet consensus estimates had the annual increase at 2.5%.

Excluding food and energy prices, so-called “core” producer inflation rose 2.3% on an annual basis, the same level seen in April. Economists were expecting to see a larger acceleration of 2.5%. On a monthly basis, core inflation was flat, also unchanged from April, while economists had forecast a 0.3% rise.

PPI captures average price shifts before they reach consumers and serves as a potential bellwether for retail-level inflation in the months ahead.

On the goods side, deflation effects were even stronger, with prices falling 0.8% in May, the largest monthly decline since October 2023. On the services side, prices rose 0.6%, the same level seen in April.

The new inflation data follows May’s Consumer Price Index released Wednesday, which showed that the pace of price increase consumers see across goods and services cooled to 3.3% from 3.4% in April. On a monthly basis, prices held flat for the first time since July 2022.

On the same day, Federal Reserve officials voted to keep interest rates at current levels, which are the highest in 23 years. But they still kept the door open to cutting interest rates later this year, albeit fewer times than they indicated at March’s meeting, according to new median projections.

Fed officials did not have access to Thursday’s data when they met. But Fed Chair Jerome Powell said he’d be paying close attention to it for clues about the path of inflation.

To cut or not to cut?

Some market observers saw Thursday’s data as a sign that the Fed will gain more of the confidence it needs to feel comfortable lowering interest rates.

“It keeps the prospect of a rate cut alive in 2024,” Clark Bellin, president and chief investment officer at Bellwether Wealth, said in a note Thursday morning.

If the trend seen in May’s PPI data continues, said Jamie Cox, managing partner for Harris Financial Group, it could lead the Fed to cut rates as soon as September.

But others expressed concerns that the fall in producer prices may actually represent a negative consequence.

“The better readings on inflation this month look like they are only occurring because economic growth has stalled and the country is in danger of going over a cliff,” said Christopher Rupkey, chief economist at FwdBonds.

“This is exactly what an economy looks like when the country enters a recession and it will be a miracle if we miss one. The Fed missed the inflation outbreak and now it looks increasingly like they misread the risks of recession and soaring job losses,” Rupkey said in a note Thursday.

Potential evidence of a weakening economy was seen in Thursday’s weekly jobless claims data. Initial jobless claims rose by 13,000 to 242,000 for the week ending June 8, the highest level in 10 months — though the data is volatile and can be frequently revised.

Stocks opened mixed after the release of PPI and jobless claims data. The Dow Jones Industrial Average was 250 points lower, or 0.6%, in morning trading; while the Nasdaq Composite and S&P 500 opened slightly higher. The latter two indexes both closed at fresh record highs on Wednesday.

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