As of May, US inflation is really starting to heat up. This increase in contrast to the low price levels at the beginning of this year is notable. On Thursday, the Bureau of Labor Statistics published its latest Producer Price Index (PPI) data. This was enough to bring a 0.1% month-over-month advance in prices producers paid, pushing the y/y PPI rate up to 2.6%. The 0.5% increase comes on the heels of a 0.2% decrease in the month of April. As a result, economists became increasingly worried about where inflation was headed.
Economists had been expecting a big increase in wholesale prices for May. They expected a 0.2% increase over the previous month. The real numbers showed a significant drop. Which means that inflation is actually running hot, but it’s running hot at a dramatically cooler rate than the slowdown we had on our radar. The same 2.6% annual rate equals the economists’ forecast for the 12 months ended in May. This alignment reflects a welcome and cautious optimism about inflation trends.
Unlike last month’s PPI, in May we saw a dramatic increase across the board—a real reversal of April’s performance. That decline was first attributable to tightened margins for wholesalers and retailers, due in part to raised tariffs. We know that President Donald Trump’s tariffs will increase prices, especially for the poor. This begs the question of their long-term effects on the nation’s economy. The PPI’s recent data serves as an important indicator for retail-level inflation. It sheds light on the broader inflationary trajectory, rendering it quite important for analysis.
The cost of wholesale goods surged in May. New Consumer Price Index data released that same day revealed overall inflation for goods and services rose less than expected. This mismatch illustrates the complicated dynamics of inflation at play. This indicates that despite wholesale prices increasing drastically, consumer prices are not being pressured in the same way.
Going forward through the year, analysts will have their eyes on these trends to get a sense of what they mean for producers’ and consumers’ benefit. This modest increase in the PPI points to a reality where producers are beginning to shift costs onto consumers. Adding to this trend are continuing pressures from tariffs. The conflicting signals from the wholesale and consumer price data are disorienting. This can lead to divergent conclusions about the economy’s underlying economic health.