Producer prices rocket 1.4% higher in May on surging energy costs

Posted Jun 17th 2008 9:09AM by Joseph Lazzaro
Filed under: Bad News, Economic Data, Oil, Agriculture, Federal Reserve

U.S. producer prices rocketed a seasonally-adjusted 1.4% in May, the U.S Labor Department announced Tuesday, as energy and food prices continued to increase wholesale costs at an alarming rate.

Economists surveyed by Bloomberg News had expected the April 2008 PPI rate to increase by 1.0%.

The core rate, which excludes food and energy costs, increased 0.2%, the Labor Department said, inline with the Bloomberg News estimate.

For the past 12 months, producer prices have increased 7.2% and the core rate has risen 3.0%. Also, the core intermediate PPI - a benchmark, leading indicator of inflation and one the U.S. Federal Reserve monitors closely, increased 2.0% in May 2008 -- its biggest increase since 1980.

Economist David H. Wang told BloggingStocks Tuesday "PPI inflation is now way too high. The Fed's period of interest rate accommodation ends with this report."

In May 2008, gasoline prices zoomed 9.3% higher, diesel rose 11.2%, natural gas increased 5.7%, raw materials rose 6.7%, food increased 0.8%, capital goods increased 0.1%, and civilian aircraft prices rose 1.1%. Auto prices declined 1%.

Economic Analysis: A horrible May PPI report. The overall rate was very high, and although the core rate, at 0.2%, was inline with the consensus estimate, the core intermediate PPI -- a rate the U.S. Federal Reserve closely monitors to determine if inflation is running higher -- increased 2.0%. As economist Wang noted, the Fed is likely to emphasize that rise, and the high level all but guarantees a Fed interest rate hike later this year.

Tags: energy prices, Fed, food prices, inflation, interest rates, inthenews, monetary policy, producer price index, U.S. Labor Department

Print this

Reader Comments (Page 1 of 1)

6-17-2008 @ 9:25AM

william lindblad said...

Perhaps sooner than currently expected. Oil may see a decrease due to Saudi/OPEC action, but floods are beyond human intervention and those that are in the middle of the U.S. will have a heavy impact on food.