WASHINGTON — Wholesale price increases fell in May, the latest sign that inflationary pressures in the United States may be easing as the Federal Reserve considers a timetable for cutting interest rates.
The Labor Department reported Thursday that the producer price index – which tracks inflation before it reaches consumers – fell 0.2% from April to May, after rising 0.5% the month before. Compared to a year earlier, wholesale prices rose by 2.2% in May. Excluding volatile food and energy prices, so-called core producer prices were unchanged from April and increased by 2.3% compared to May 2023.
The producer price index can provide an early indication of the direction in which consumer inflation will evolve. Economists also watch it because some of its components, including certain health care and financial services costs, are used to construct the Fed’s preferred inflation gauge known as the personal consumption expenditures price index.
The wholesale figures were released a day after the Ministry of Labor reported it Consumer inflation declined in May for a second month in a row. Core consumer prices rose 0.2% from April to May, the smallest increase since October. And compared to May 2023, core prices rose 3.4%, the slightest increase in three years.
Consumer inflation peaked at 9.1% two years ago but fell as the Fed raised rates 11 times in 2022 and 2023, bringing them to a 23-year high. Still, interest rates remain above the Fed’s 2% target.
But combined with Wednesday’s milder consumer inflation report, Thursday’s wholesale data offered an encouraging sign that the price surge that occurred early this year may be over.
After finishing the last policy meeting on Wednesday, the The Fed said it was leaving its benchmark interest rate unchanged and that the country expects only one rate cut this year, compared to the previous forecast of three cuts in 2024.
Even as inflation declines, necessities such as groceries, rent and health care are much more expensive than they were three years ago – a continuing source of public discontent and a political threat on President Joe Biden’s re-election bid.
But despite persistent inflationary pressures and higher borrowing costs, the US economy remains resilient. Companies are hiring. Unemployment remains low, providing Americans with unusual job security. The World Bank just upgraded its forecast for US economic growth this year from 1.6% to 2.5% The markup was so large that it improved the bank’s prospects for the entire global economy.