PPI Ticks Up Ahead of FOMC Decision on Interest Rates

By Jon C. Ogg Updated Jan 13, 6:47AM EST · Published Jun 15, 10:20AM EDT

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PPI Ticks Up Ahead of FOMC Decision on Interest Rates — © courtesy of Wal-Mart Stores Inc.

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.

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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.

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

About the Author Jon C. Ogg →

Jon Ogg has been a financial news analyst since 1997. Mr. Ogg set up one of the first audio squawk box services for traders called TTN, which he sold in 2003. He has previously worked as a licensed broker to some of the top U.S. and E.U. financial institutions, managed capital, and has raised private capital at the seed and venture stage. He has lived in Copenhagen, Denmark, as well as New York and Chicago, and he now lives in Houston, Texas. Jon received a Bachelor of Business Administration in finance at University of Houston in 1992. a673b.bigscoots-temp.com.