Wholesale prices accelerated again in May as inflation tightened its grip on the US economy, adding to financial pressure on millions of Americans.
The Labor Department said Tuesday its producer price index, which measures inflation at the wholesale level before it reaches consumers, rose 10.8% in May from a year earlier. former. On a monthly basis, prices rose 0.8%. Although this is slightly lower than the 10.9% forecast by economists at Refinitiv, the reading – close to a record 11.5% reached in March – suggests that inflationary pressures in the economy remain strong.
Core inflation at the wholesale level, which excludes the more volatile food and energy measures, rose 0.5% for the month, after rising 0.6% in April. . Over the past 12 months, core prices have climbed 6.8%.
Overall, goods prices jumped 1.4% last month, the fifth consecutive rise and the biggest contributor to headline inflation. This included a 5% gain in energy costs and an 8.4% jump in gasoline prices. The services index, meanwhile, rose 0.4% in May, with increases in transportation and warehousing services accounting for more than half of the gain.
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The spike in wholesale prices follows a separate decline The Labor Department report released last week which showed the consumer price index rose 8.6% in May from a year ago, faster than expected. It marks the fastest pace of inflation since December 1981.
Creeping inflation has become a major political handicap for President Biden ahead of November’s midterm elections, in which Democrats are expected to lose their already slim majorities. Surveys show that Americans see inflation as the biggest problem facing the country – and that many households blame Biden for the price spike.
Soaring consumer prices also forced the Federal Reserve to tighten monetary policy at the fastest pace in two decades, raising the risk that the economy could plunge into a recession. Policymakers have already raised the benchmark interest rate by 50 basis points – double the usual size – in May and are expected to approve increases of a similar size in June, July and September.
Last week’s worse-than-expected inflation reading also put the previously unthinkable on the table: a 75 basis point rate hike in June or July. About 90% of trades are eyeing a 75 basis point hike following the Fed’s policy-setting meeting on Wednesday, which would mark the first such move since November 1994.
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“The combination of today’s PPI and last Friday’s CPI paints a clear picture of an overheating economy, with inflation lingering further down the production chain,” said researcher Peter Earle. at the nonprofit American Institute for Economic Research. “It looks like there’s a long, hot summer ahead. The Fed’s policies, so far, have been ineffective.”