PPI Ticks Up Ahead of FOMC Decision on Interest Rates

Investing

Published: June 15, 2016 10:20 am

Last Updated: January 13, 2020 6:47 am

Wednesday may mark the decision from the Federal Reserve’s Federal Open Market Committee (FOMC) on interest rates, but the morning economic reports brought a last view of wholesale inflation for Janet Yellen and her Fed presidents to consider. The Producer Price Index (PPI) for final demand increased by 0.4% in May’s headline report, and PPI rose by 0.3%, if you back out food and energy for a core-PPI reading.

Bloomberg’s consensus reading for the headline PPI was 0.3%, and Reuters was calling for a gain of 0.3% as well. Consensus estimates for core-PPI were 0.2% from Bloomberg and 0.1% from Reuters.

This may not sound on the surface like strong inflation. Despite the rise in oil and gas, the annualized comparisons were weak. Headline PPI was −0.1% in May versus May 2015. The core-PPI annualized number was 1.2% in May of 2016 versus May of 2015.

The Bureau of Labor Statistics (BLS) report showed that the index for final demand goods was up 0.7%. The BLS said that about two-thirds of the May 2016 increase was attributed to prices for final demand energy, which was up by some 2.8% in May. The indexes for final demand goods on a core reading (excluding food and energy) moved up by 0.3%.

Over one-third of the increase in the index for final demand goods was said to be attributable to gasoline prices, which rose 6.6%. The index for final demand services rose by 0.2% in May after a gain of 0.1% in April. Leading the rise in prices for final demand services, margins for machinery and equipment wholesaling rose by 3.6%.

The BLS did show areas where prices were lower:

The indexes for apparel, jewelry, footwear, and accessories retailing; inpatient care; residential property brokerage fees and commissions; flooring and floor coverings retailing; and legal services also increased. In contrast, prices for loan services (partial) declined 3.0 percent. The indexes for food retailing and airline passenger services also moved lower.

Both Dow and S&P 500 futures were last seen higher, but off of their highs ahead of the FOMC rate decision. Stay tuned.

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