Wholesale Prices in U.S. Unexpectedly Decreased in May

Wholesale prices in the U.S. unexpectedly fell in May, suggesting demand isn’t robust enough to push inflation closer to the Federal Reserve’s target.

The 0.2 percent decrease in the producer price index compared with the median estimate in a Bloomberg survey of 71 economists that called for a 0.1 percent gain. Over the past 12 months, costs climbed 2 percent, figures from the Labor Department showed today.

The May dip, the first in three months, suggests pricing power hasn’t yet materialized as the global economy is slow to accelerate. Muted costs are a problem for Federal Reserve policy makers, who have said they want inflation to increase closer to their 2 percent goal, a sign they will keep interest rate low well into 2015.

“Producer price inflation is still fairly contained despite the big increases in the last few months,” Omair Sharif, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut, said in a research note.

Stock-index futures were little changed, erasing earlier losses. The contract on the Standard & Poor’s 500 Index maturing in September rose less than 0.1 percent to 1,924.2 at 9:02 a.m. in New York.

Survey Results

The May PPI decrease followed a 0.6 percent gain the prior month. Forecasts in the Bloomberg survey ranged from a drop of 0.3 percent to a 0.5 percent gain.

The advance from the same month a year before was smaller than the 2.1 percent rise in the year to April.

Wholesale food expenses decreased 0.2 percent in May as the cost of pork slumped 5.1 percent, the most since April 2012. This followed gains of 20.6 percent in April and 7.2 percent in March that resulted from a drop in supply due to a disease afflicting pigs.

At Heathrow, Florida-based Ruth’s Hospitality Group Inc., whose brands include Ruth’s Chris Steak House, higher beef prices have pressured margins.

“There’s been drought, it’s challenging for farmers, there’s fewer cattle,” Chief Financial Officer Arne Haak said in a June 10 presentation. “It’s going to be something, a challenge we’re going to have to work with for years.”

Energy costs decreased 0.2 percent last month after a 0.1 percent April gain.

Core Measure

The so-called core measure, which strips out volatile food and fuel, decreased 0.1 percent after rising 0.5 percent in the prior month. It was projected to rise 0.1 percent, the survey median showed.

The cost of services decreased 0.2 percent in May, reflecting a drop in margins at retailers and wholesalers.

Prices for goods also fell 0.2 percent last month.

Producer prices for finished products related to consumer spending decreased 0.2 percent in May after rising 0.7 percent the month before. The selling prices received by businesses for goods and services going toward consumption represent about 68 percent of PPI, providing insight into longer-term changes in the consumer price index.

Producer prices are one of three monthly inflation gauges from the Labor Department. The consumer price index, the broadest of the three measures, may have climbed 0.2 percent in May, according to the Bloomberg survey median, for a 2 percent year-over-year gain.

Disinflation Detrimental

While cheaper goods and services can be good news for consumers, disinflation makes it difficult for borrowers to pay off debts and businesses to boost profits.

Central bankers aim for an inflation rate near 2 percent. The Fed’s preferred gauge of consumer prices, the personal consumption expenditures index, climbed 1.6 percent in the year through April.

The Fed’s Open Market Committee pared its monthly asset-buying to $45 billion, its fourth straight $10 billion cut, and said further reductions in “measured steps” are likely. Policy makers will consider broad range of data in determining when to raise the main interest rate.

The PPI report this year expanded to measure 75 percent of the economy, compared to about a third for the old metric, which tallied the costs of goods alone. Following its first major overhaul since 1978, PPI now measures prices received for services, government purchases, exports and construction.

(An earlier version of this story corrected to say PPI decreased in sixth paragraph.)

To contact the reporter on this story: Jeanna Smialek in Washington at jsmialek1@bloomberg.net

To contact the editors responsible for this story: Carlos Torres at ctorres2@bloomberg.net

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