CNN
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US wholesale inflation rose slightly in May, driven in part by costlier goods; however, tariff-related effects were largely muted.
The latest Producer Price Index, a closely watched measurement of wholesale inflation, showed that prices paid to producers rose 0.1% in May, lifting the annual rate to 2.6%, according to Bureau of Labor Statistics data released Thursday.
Economists were expecting that prices would rise 0.2% from April and 2.6% for the 12 months ended in May.
Economists warn, however, that President Donald Trump’s sweeping tariffs are expected to eventually result in some price increases for consumers.
The upswing marked a turnabout from a 0.2% drop in April, which was driven largely by wholesalers and retailers’ margins being squeezed, which economists attributed to higher tariffs.
Revisions to April’s PPI data showed that margins weren’t eaten up as much as previously thought: The initially reported 1.7% plunge in the trade services category was revised to a 0.5% drop. In May, trade services posted an increase of 0.4%, according to the report.
Goods-related inflation picked up for the month, rising 0.2%, while services inched higher by 0.1%.
“The softer headline gain for the PPI in May hides much of the underlying cost pressures faced by producers,” Ben Ayers, Nationwide senior economist, wrote in a note to investors on Thursday. “Tariff impacts are steadily flowing into prices for inputs, especially for metals, which is raising production costs for machinery and vehicles.”
He added: “But a wave of tariff-induced cost spikes remains missing from the data, further muting and extending the expected price increases for consumers tied to trade disruptions.”
PPI serves as a potential bellwether for retail-level inflation in the months ahead.
Excluding food and energy, which are categories that typically have more volatility, core PPI rose slightly as well, increasing 0.1% from April. On an annual basis, core PPI inflation eased slightly to 3% from 3.1%.
On Wednesday, the latest Consumer Price Index data showed that overall inflation rose less than expected for goods and services commonly purchased by Americans.
During the past year, the overall PPI was heavily influenced by swings — both positive and negative — in food and energy. Both categories in May, however, were tame, as foods rose by 0.1% and energy prices were unchanged.
About 80% of the increase seen in goods prices last month came from areas other than food and energy. Economists have recently indicated that the price pressures from tariffs would show up first in “core goods” (goods that exclude food and energy).
The prices producers received for durable consumer goods shot 0.4% higher in May, logging the largest monthly increase that category has seen since January 2023, BLS data shows.
However, monthly data can be volatile, and economic data is frequently revised as more comprehensive information becomes available, something that was fully on display between April and May PPI reports, said Tyler Schipper, associate professor in economics and data analytics at the University of St. Thomas in St. Paul, Minnesota.
“A lot of the upstream potential tariff pressures that economists had identified were not present in the May numbers and were, in many cases, revised downwards,” he told CNN in an interview.
“There might have been some changes in what producers were selling for in April that changed in May, because policies were turned on or off; but I think we are in danger of over-interpreting the data when we do that again,” he added.
It’s expected that it will take more time to determine the extent to which these trade policy shifts will affect prices and whether they result in more than a short-term bump in inflation. What is clearer, however, is that the Federal Reserve is being put “in a really hard position,” he said.
“I think they still have some time where they don’t have to come riding to the rescue,” he said. “And my best guess is that next week and even later this summer, they will continue to hold off (cutting rates) until early in the fall.”
