The Bureau of Labor Statistics reported that producer prices for finished goods jumped 0.5 percent in May. As such, raw material costs bounced back somewhat from the 0.6 percent and 0.7 percent losses, respectively, in February and March. This shifted the year-over-year rate up from 0.6 percent last month to 1.7 percent now. Despite the uptick, pricing pressures overall still remain modest.
The higher figure stemmed both from increases in both food and energy prices. The cost of finished energy goods rose 1.3 percent, partially offsetting the 3.4 percent and 2.5 percent declines in the prior two months. This increase is consistent with the rise in the price of West Texas intermediate crude rose from an average of $92.02 per barrel in April to $94.51 in May. Meanwhile, food prices were 0.6 percent higher after an up-and-down year so far where costs have been higher one month only to fall the next. The largest food price increases were for fruits, vegetables, dairy, eggs, and fish.
Outside of food and energy, producer prices were up only slightly. Core inflation – which excludes food and enrgy costs – rose 0.1 percent in May, with a year-over-year pace of 1.6 percent. This number is important, as it indicates that inflationary pressures remain below the Federal Reserve Board’s stated target of 2 percent or less. With the next Federal Open Market Committee (FOMC) scheduled for June 18 and 19, this data will become more relevant. The expectation is that the FOMC will continue to pursue its “highly accommodative” policies, even as it might taper the level of asset purchases that it conducts each month from its current $85 billion to something less than that.
For manufacturers, producer prices were unchanged in May from April, with an annual change of only 0.3 percent. This suggests that pricing pressures in total have diminished from where they were a year or so ago, even as some specific sectors are experiencing some higher raw material costs. The biggest input price increases in the sector were in the plastics and rubber (up 0.8 percent), food (up 0.5 percent), leather (up 0.5 percent), and paper (up 0.5 percent) manufacturing industries. At the same time, there were lower costs observed in the primary metal (down 1.4 percent), textile mills (down 0.5 percent), beverage and tobacco (down 0.4 percent), and chemical (down 0.3 percent) sectors, among others.
Chad Moutray is chief economist, National Association of Manufacturers.