WASHINGTON – Recent data indicates that inflationary pressures remain modest, as evidenced by a moderate rise in U.S. wholesale prices over the past year. According to the Labor Department, its producer price index, which tracks inflation prior to reaching consumers, saw a 2.6% increase in May 2024 compared to the previous year. From April to May, there was a slight climb of 0.1% following a 0.2% decrease in the preceding month.
When omitting the more unpredictable food and energy sectors, wholesale costs went up by 0.1% from April and showed a 3% increase compared to May 2024. These results were slightly less than what economists had been predicting.
Energy prices at the wholesale level remained stable; however, gasoline prices surged by 1.6% following a decline in the previous month. Food prices witnessed a marginal rise of 0.1% after witnessing a notable 0.9% dip in April. Egg prices, which have fluctuated substantially due to the bird flu outbreak, increased by 1.4% after a dramatic 39.3% drop in April, although they are up by 125% since May 2024.
This report closely follows the Labor Department’s announcement of a modest 0.1% increase in consumer prices from April and a 2.4% rise over the past year. Since taking office, President Donald Trump introduced 10% tariffs on nearly all countries, alongside specific tariffs on steel, aluminum, and automobiles. These tariffs are absorbed by U.S. importers who potentially pass the costs onto consumers through price hikes. Consequently, economists anticipate a rise in inflation rates later this year.
Presently, the impact of such tariffs on overall prices appears minimal. Wholesale prices are often regarded as precursors to consumer inflation trends. Additionally, certain components, such as healthcare and financial services, contribute to the Federal Reserve’s favored inflation measure, the personal consumption expenditures (PCE) index.
The onset of noticeable inflation occurred in 2021 when the post-COVID-19 economic rebound exceeded expectations, prompting the Federal Reserve to implement 11 interest rate hikes throughout 2022 and 2023. These increased interest rates contributed to reducing inflation from its 2022 peak. Feeling assured by these developments, the Federal Reserve reduced rates three times last year.
This year, the Federal Reserve remains cautious, awaiting the potential inflationary consequences of President Trump’s trade policies. It is anticipated that the central bank will maintain interest rates at the upcoming meeting scheduled for next Tuesday and Wednesday.
“There is no incentive for the [Federal Reserve] to debate hiking rates in today’s figures,” states Carl Weinberg, chief economist at High Frequency Economics. “In fact, if the Fed did not know that tariff increases were in the pipeline, it might even contemplate cutting rates.”