The prices paid to U.S. businesses for goods and services rose at the fastest annual pace in more than three years in May, driven by higher energy costs.
The Department of Labor said its producer price index (PPI) for final demand rose 1.1 percent in May compared with April. The index also rose 1.1 percent in April and 0.7 percent in March. Compared with a year ago, the index was up 6.5 percent, the largest annual increase since November 2022.
Economists had expected the index to climb 0.7 percent for the month and 6.4 percent from a year ago. The previous month’s increase was revised down three-tenths of a point from 1.4 percent.
Around 57 percent of the increase came from rising energy prices. Excluding food and energy, core producer prices rose 0.4 percent in May. Over the past 12 months, core prices are up 4.9 percent.
Personal consumption goods prices jumped 3.5 percent in May and were up 11 percent from a year ago. Excluding energy, these prices rose 0.3 percent and were up 2.9 percent annually.
The producer price index tracks prices received by U.S. businesses that sell goods and services to consumers in the U.S. and abroad, other businesses, and governments, a broader range of buyers than the prices tracked by the consumer price index (CPI). The headline figures, which come from the index for final demand, are based on sales of products to end-users rather than those that contribute to the manufacture or provision of other goods and services. It excludes import prices, since those are not paid to U.S. producers, but includes export prices, which are excluded from CPI.
Energy prices rose 10.7 percent in May, led by the 23.4 percent increase in gasoline. Prices for diesel fuel, jet fuel, plastic resins and materials, industrial chemicals, and natural gas liquids also climbed, the government said. Prices for residential electrical power, however, fell.
Final demand goods prices rose 2.8 percent in May, the largest increase since the data were first calculated in December 2009. Eighty percent of that increase was driven by energy. Prices of foods also climbed, rising 0.6 percent. Core goods, a measure that excludes food and energy prices, rose by a sharp 0.8 percent.
Inflation in services cooled. The index for final demand services moved up 0.3 percent in May following a 0.7 percent rise in April. The index for final demand transportation and warehousing services moved up 2.6 percent, likely due to surcharges and higher prices related to the surge in fuel prices. More than forty percent of the increase in the services index was due to a rise in portfolio management, a category mechanically tied to the performance of stocks and financial instruments.
The PPI for final demand also tracks margins of wholesalers and retailers under the category of “trade services.” The difference between what a wholesaler or retailer pays for a product and its final sale price is treated as the price of the service the sellers provide. Trade services margins contracted 1.1 percent in May, mostly reversing the 1.3 percent expansion in April.
The index for final demand excluding foods, energy, and trade services rose 0.8 percent in May, the biggest jump since increasing 0.9 percent in March 2022. For the 12 months ended in May, this so-called “super core” index is up 5.1 percent, the largest 12-month rise since the 5.5 percent rise recorded in October 2022.
The PPI also tracks “intermediate demand.” These are prices for goods and services that are used to create products for final demand. (Excluding capital investments, which are counted in the final demand index.) The index for processed goods for intermediate demand increased 3.5 percent, the largest increase since 2021. Over 60 percent of the broad-based May increase can be attributed to a 10.4-percent jump in prices for processed energy goods. Diesel prices, which jumped 15.7 percent, accounted for about one-quarter of the total increase. Foods and feeds prices moved up 0.7 percent. Excluding foods and energy, processed goods prices climbed 1.8 percent.
Unprocessed goods prices rose 4.9 percent, largely driven by crude oil prices. Intermediate demand services prices rose 0.5 percent, largely driven by investment services prices linked to rising stock prices. Margins for machinery and equipment parts and supplies wholesaling declined 1.2 percent.
Categories thought to be related to the building of AI data centers and the expansion of AI capabilities saw mixed movements. Communication and related equipment prices climbed 0.2 percent and are up 11.9 percent from a year ago. Transformers and power regulators saw prices advance 0.4 percent, for an annual gain of 3.7 percent. Prices of electronic components and accessories fell 0.6 percent after jumping eight percent in the previous month. These prices are up 26.9 percent from a year ago. In intermediate demand, prices of electronic components fell 0.6 percent but are up the same 26.9 percent from a year ago. Prices for switchboards and control gear for intermediate demand rose 0.6 percent in May and 10.8 percent from a year ago.
The prices paid for goods and services purchased by the government climbed two percent after rising 2.1 percent in April. For the year, prices are up 10.6 percent. Defense related purchases saw prices rise 2.6 percent in May and 14.7 percent annually.
Although often described in media reports as an index of wholesale prices, only a small part of the index is related to wholesale. Officially, the index has not been called a wholesale price index since 1978 (and even back then, it was a misnomer, according to the Dept. of Labor).
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