The Bureau of Labor Statistics reported today that the Producer Price Index (PPI) for finished goods rose 0.2 percent in May, an improvement from the 0.8 percent jump in April. While a lower PPI is a good sign, it is also important to note that producer prices are up 7.2 percent year-over-year, with businesses continuing to cite rising energy and raw material costs as a major concern. Finished energy goods rose 1.5 percent in May and were up 24.5 percent since May 2010. Core inflation, though, which excludes food and energy costs, increased 0.2 percent, as the rise in energy costs was offset by a similar decline in the price of food items for the month.
Looking at the net output of manufacturing firms, the PPI for finished goods rose 0.9 percent in May, following several months of strong gains. Over the last year, producer prices for manufactured goods have increased 8.9 percent. Industries with the largest monthly increases in producer prices were petroleum and coal products (up 4.1 percent), textile product mills (up 2.7 percent), plastics and rubber products (up 1.4 percent), and chemical manufacturers (up 1.2 percent).
Meanwhile, the PPI intermediate goods rose 0.9 percent, while the cost of crude materials dropped 4.1 percent in May. Much of the decline in the cost of crude prices can be attributed to falling energy prices, with the index for crude energy materials dropping 5.2 percent for the month. Crude foodstuffs and feedstuffs also saw a decrease of 4.4 percent.
Overall, this report is somewhat mixed. For the economy as a whole, you see some moderation in producer prices, and the falling prices for energy and food will help to ease a tension that has squeezed both consumers and businesses over the past few months. With that said, manufacturers continue to experience growth in raw material prices, and the buildup in these costs is a major challenge that is squeezing their profits.
Chad Moutray is chief economist, National Association of Manufacturers.