Labor Department reports a 0.3% decline in wholesale inflation for May

Wholesale Prices in the US Drop as Inflationary Pressures Ease

The United States Department of Labor recently reported that wholesale prices in the United States dropped by 0.3% from April to May. This is another indication that inflationary pressures in the economy continue to ease amidst repeated interest rate hikes by the Federal Reserve.

Latest Producer Price Index

According to the Department of Labor’s producer price index, which measures inflation before it reaches consumers, overall producer prices have now dropped three of the last four months. The report shows that last May, wholesale inflation was pulled down by a 13.8% drop in gasoline prices. However, despite this slump, the index rose by 1.1% from May 2022 to the present month, representing the smallest year-over-year gain recorded since December 2020.

The report also highlights that excluding volatile food and energy prices, so-called core wholesale inflation was up by 0.2% from April and 2.8% from a year earlier, representing the mildest gain since February 2021.

The Fed and Inflation

Inflation has been a recurring issue for the US economy exacerbated by the uncertain times caused by the COVID-19 pandemic. In response to this, the Federal Reserve has raised its benchmark interest rate ten times in the past 15 months, leading to more stable prices. The Fed policymakers at their meeting on Wednesday are expected to leave the rates alone to assess the impact of the aggressive rate hikes that have affected the economy in the long term.

Although inflation has been receding, year-over-year increases in producer prices peaked in March 2022 at 11.7% and have fallen for 11 consecutive months.

Consumer Price Index

The Labor Department also reported that the consumer price index rose by just 0.1% from April to May and 4% from May 2022- the lowest 12-month figure recorded in two years. The CPI decrease from a 4.9% increase in April, but it still has not reached the Fed’s 2% target year-over-year increase.

Economists had expected a 0.1% slide in producer prices from April to May, but the 0.3% drop shows a more positive trend than previously forecasted.

Analyst Perspective

Rubeela Farooqi, chief U.S. economist at High Frequency Economics, analyzed the report and concluded that “producer prices have downshifted sharply, and core PPI is steadily moving towards the 2% target. Overall, the inflation data support a hold in policy at today’s (Fed) meeting.”

Conclusion

The report shows that the US economy continues to be on the road to stabilizing price levels in the economy. The Federal Reserve will continue to assess the impact of its actions on the economic system. As the country emerges from the pandemic, it is essential to keep track of the constantly changing economic landscape.