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Economy in Brief

U.S. Producer Price Strength Led by Food & Energy in May
by Tom Moeller  June 11, 2020

• Price index increases for first time in four months

• Prices less food & energy slip.

• Core goods prices hold steady while services prices ease.

With industrial sector activity under pressure, pricing power remains constrained. The Producer Price Index for final demand increased 0.4% (-0.8% y/y) during May following a 1.3% March decline. No change in the PPI had been expected in the Action Economics Forecast Survey. Underlying pricing pressure remained weak. Producer prices excluding food & energy matched expectations and eased 0.1% (+0.3% y/y), the third decline in four months. The PPI excluding food, beverages and trade services, another measure of underlying price inflation, improved 0.1% (-0.4% y/y) after a 0.9% April decline.

A 6.0% increase in food prices led the PPI higher last month as the coronavirus raised some product costs. A 69.1% jump (78.0% y/y) in beef & veal prices led the increase. Fresh fruit & melon prices strengthened 11.4% (7.1% y/y) and vegetable prices rose 2.7% (-9.7% y/y). Oilseed prices rose 2.9% (7.1% y/y). These gains were offset by a 44.0% drop (+63.8% y/y) in fresh egg prices and a 3.5% decline (-6.6% y/y) in dairy product prices.

A 4.5% rebound in energy prices also was part of the rise in producer prices last month. Gasoline prices increased 43.9% (-52.5% y/y) and natural gas prices rose 0.7% (-0.7% y/y). To the downside, home heating oil prices were off 34.6% (-65.4.7% y/y) and the cost of electric power slipped 0.3% both m/m and y/y.

Final demand goods prices less food & energy held steady in May (+0.2% y/y) after a 0.4% decline in April. The cost of finished consumer goods less food & energy improved 0.1% (1.0% y/y). Core nondurable goods prices fell 0.2% (+1.5% y/y) following years of strength. Women's apparel prices weakened 0.7% y/y but men's clothing costs rose 0.6% y/y. Durable consumer product prices improved 0.3% y/y.

For businesses, private capital equipment prices rose 0.2% last month (1.0% y/y) and reversed the prior month's decline.

Services prices for final demand slipped 0.2% in May (+0.3% y/y) for a second straight month. Trade services prices fell 0.8% (+2.7% y/y), as the cost of trade of finished goods weakened 0.9% (+2.9% y/y). A 1.5% rise (-5.4% y/y) in transportation & warehousing services prices offset the decline. Excluding these costs, prices held steady (-0.2% y/y).

The cost of construction eased 0.1% (+2.5% y/y) following a 0.5% strengthening.

Intermediate product prices edged 0.1% higher (-6.8% y/y) following a 3.7% decline.

The PPI data can be found in Haver's USECON database. Further detail can be found in PPI and PPIR. The expectations figures are available in the AS1REPNA database.

Producer Price Index (SA, %) May Apr Mar May Y/Y 2019 2018 2017
Final Demand 0.4 -1.3 -0.2 -0.8 1.7 2.9 2.3
   Excluding Food & Energy -0.1 -0.3 0.2 0.3 2.1 2.6 1.9
   Excluding Food, Energy & Trade Services 0.1 -0.9 -0.2 -0.4 2.0 2.9 2.1
   Goods 1.6 -3.3 -1.0 -3.3 0.4 3.4 3.4
      Foods 6.0 -0.5 0.0 6.9 1.8 0.2 1.2
      Energy 4.5 -19.0 -6.7 -26.0 -4.4 10.1 10.6
    Goods Excluding Food & Energy 0.0 -0.4 0.2 0.2 1.4 2.5 2.2
   Services -0.2 -0.2 0.2 0.3 2.2 2.6 1.8
      Trade Services -0.8 1.6 1.4 2.7 2.5 1.8 1.5
   Construction -0.1 0.5 0.1 2.5 4.9 4.1 2.2
Intermediate Demand - Processed Goods 0.1 -3.7 -1.1 -6.8 -1.4 5.4 4.7
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