The Bureau of Labor Statistics announced that the producer price index (PPI) for the year ending in May fell to 2.2%, a decline not anticipated by most forecasters. This decrease is an encouraging sign for the Federal Reserve as it strives to normalize the economy. The PPI measures inflation based on prices paid by producers, rather than consumers, and this reading is lower than the expected increase.
The month-to-month decline in the wholesale price index was 0.2%. The consumer price index, which is closely monitored, showed a one-tenth of a percentage point decline to 3.3% for the year ending in May. The Fed aims to keep inflation at 2%, indicating that there is still a way to go to achieve this goal.
The Federal Reserve recently maintained its interest rate target at 5.25% to 5.50%, as expected. Officials noted moderate progress in reducing inflation, but are divided on interest rates by the end of the year, with most anticipating at least one rate cut. The personal consumption expenditures index is expected to decline to 2.6% by the end of 2024, less than the 2.4% predicted in March.
The Fed’s reluctance to cut rates up until now has been driven by strong job gains and signals that the economy remains resilient. The economy added 272,000 jobs in May, and the unemployment rate rose to 4%. GDP growth remained positive, expanding at a 1.3% seasonally adjusted annual rate in the first quarter.
