Producer Price Index Below Expectations - No Inflation Yet

The Producer Price Index (PPI) rose 0.2 percent in May, which was below expectations. The increase was driven by a 13.9 percent spike in gasoline prices. Core PPI, which excludes food and energy prices, fell 0.1 percent. Core intermediate goods prices fell 0.2 percent, continuing to suggest pipeline inflation pressures should remain subdued.

Year-over-Year Headline PPI Prices Lowest Since 1949

The PPI for total finished goods rose 0.2 percent in May driven by a spike in gasoline prices, which were up 13.9 percent on the month. Reversing last month’s gain, food prices fell 1.6 percent and are now down 2.1 percent, year over year. Vegetables and eggs both fell significantly. Consumer goods prices are now down 7.1 percent year over year, the biggest decline on record with women’s apparel falling for the third consecutive month.

Core Intermediate and Raw Materials Prices Suggest Slowing

Core PPI fell 0.1 percent on the month. Core intermediate goods prices are now down 5.5 percent year over year and suggest that pipeline inflation pressures should remain subdued. Core raw materials prices surged 6.7 percent on the month due to a spike of 18.6 percent in crude petroleum, but are down 36.8 percent year over year. Economic weakness should continue to exert downward pressure on wholesale inflation in the months ahead.

Wachovia Corporation
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