Photographer: Luke MacGregor/Bloomberg

Rising Fuel Pushes Up U.S. Producer Prices for Second Month

  • Biggest jump in energy costs since May 2015 propels gain
  • Excluding food, energy and trade services, prices decline 0.1%

The rebound in fuel costs pushed up U.S. wholesale prices in May for a second month, overshadowing a drop in pricing power more broadly that signals inflation will take time to move toward the Federal Reserve’s goal.

The producer-price index gained 0.4 percent, more than forecast, after a 0.2 percent increase the prior month, a Labor Department report showed Wednesday in Washington. Excluding volatile components such as food, energy and trade services, prices declined for the first time in seven months.

The lingering effect of the prior drop in energy and the stronger dollar means price pressures in the production pipeline may be slow to pick up. This is the last bit of inflation data Fed policy makers will see as they wrap up a meeting Wednesday to discuss the outlook for interest rates.

“We aren’t seeing a whole lot of inflationary pressures in the pipeline,” said Scott Brown, chief economist at Raymond James Financial Inc. in St. Petersburg, Florida. “On inflation, there is still no pressure for the Fed to hit the brakes.”

The median forecast of 66 economists surveyed by Bloomberg called for a 0.3 percent rise. Projections ranged from little change to an advance of 0.6 percent.

Year-to-Year

Costs declined 0.1 percent over the past 12 months after being little changed.

Food prices rose 0.3 percent and energy expenses climbed 2.8 percent, the most since May 2015.

Excluding food and energy, wholesale prices rose 0.3 percent following a 0.1 percent advance in the prior month. Those costs were up 1.2 percent from May 2015.

Also eliminating trade services, the producer costs gauge fell 0.1 percent, the first decline since October, following a 0.3 percent advance the previous month. Some economists prefer this reading because it strips out the most volatile components of the index.

The Fed’s preferred gauge of inflation, which is the Commerce Department’s personal consumption expenditures measure, hasn’t reached the central bank’s 2 percent goal since April 2012. The central bank has a dual mandate of stable prices and maximum employment.

Health Care

Some of the health-care components from the PPI index that feed into the Fed’s preferred gauge, including physician and hospice care, declined last month, signaling the central bank’s measure will remain muted.

“I continue to think that the federal funds rate will probably need to rise gradually over time to ensure price stability and maximum sustainable employment in the longer run,” Fed Chair Janet Yellen said in a speech on June 6.

The producer price gauge is one of three monthly inflation reports from the Labor Department. Data on Tuesday showed the measure of import prices climbed 1.4 percent in May, the biggest gain in four years. The consumer price index is due on Thursday.

(Updates with economist comment in fourth paragraph.)

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