US wholesale inflation posted a modest uptick in May following several months of relative calm so far this year. The Producer Price Index (PPI) is a measure of price changes seen by the producer. REUTERS/Kevin Lamarque Data for the Labor Department index released Thursday showed that it increased just 0.1% in the month. This increase is a welcome improvement from the 0.2% decrease we experienced in April. During that period, wholesalers and retailers faced increasing pressure from tighter margins due to increasing tariffs.
Economists had expected a much larger jump in prices, predicting an increase of 0.2% from April levels. In fact, the tiny 0.1% increase in May caught most by surprise. Lastly, it is a signal that inflation pressures continue to be muted, at least for the time being. The annual rate of the PPI has climbed to 2.6%. That’s right on the money as economists were calling for during the 12 months ending in May.
The PPI data are always an important early signal of future retail-level inflation. That’s what makes it such a key indicator for understanding overall economic trends. The jump in producer prices looks small on the surface. It may foreshadow new, tectonic shifts, powered in large part by the trade policies and tariffs the administration of President Donald Trump established. These tariffs will surely be a significant factor driving future price increases for consumers.
In April, the decline in the Producer Price Index (PPI) was largely attributed to tariffs. These tariffs further squeezed the profit margins for wholesalers and retailers. As these costs continue to ripple down through the supply chain, they may affect retail consumer prices in the months ahead.
The Consumer Price Index (CPI) data provides some helpful context. It highlights how much less inflation for all goods and services went up than we expected during this period. Production costs are starting to tick upward—albeit modestly—for producers. These increases have not yet completely trickled down to consumers.
Overall, this has been a pretty ho-hum start to 2023 when it comes to inflation in the US. This past May, we experienced one of the largest increases of the whole PPI. Such an increase might indicate tighter price pressures in the second half of the year, particularly if tariffs continue to raise production costs.