Wholesale prices jump again and signal still-intense inflation in U.S. economy

Wholesale prices jump again and signal still-intense inflation in U.S. economy

The numbers: The cost of wholesale goods and services jumped 0.8% in May and added to mounting evidence that the highest U.S. inflation in 40 years will persist through the summer.

Economists polled by The Wall Street Journal had forecast a 0.8% advance.

Higher gasoline prices accounted for the lion’s share of wholesale inflation in May, but the cost of steel, chicken, transportation, autos and parts also rose.

The increase in wholesale prices over the past 12 months dipped to 10.8% from 10.9%, the government said Tuesday. Just a year and a half ago, prices were rising at a less than 2% pace.

So-called core wholesale prices, which omit food and energy, rose 0.5% in May. Wall Street had expected a 0.5% increase.

High wholesale inflation suggests little relief any time soon for consumers. When companies have to pay more to operate their businesses, they usually pass the price increases onto customers.

The government on Friday said the cost of living rose sharply again in May and nudged the yearly rate of inflation to 8.6% from 8.3%. That’s the biggest outbreak of inflation since 1981.

Big picture: The poor results of the consumer price index in May killed any hopes on Wall Street that inflation would ease soon.

The Federal Reserve is now expected to raise interest rates even more rapidly than it had planned to try to contain inflation. Yet worries are growing that the central bank might drive the economy into recession by a more aggressive posture.

Key details: The wholesale cost of goods soared 1.4% last month.

The wholesale cost of gas jumped 8.4% in May and is up 66% in the past year.

Wholesale food prices were flat in May, but they have risen 13% in the past year and could go higher. The cost of grains such as wheat and corn have surged because of disruptions in supplies caused by the Russian invasion of Ukraine. Both are among the top grain producers in the world.

If energy, food and trade margins are omitted, inflation rose somewhat less rapidly. Still, the core rate of wholesale prices are up 6.8% in the past year.

The Fed views the core rate as a clearer window into inflation trends, but households still devote a large share of their budgets to fuel and meals.

The cost of partly finished goods and raw materials also increased sharply in May. These prices remain extremely high.

The PPI report reflects what companies pay for supplies such as grains, fuel, metals, lumber, packaging and so forth. Steadily rising wholesale prices tend to be a harbinger of higher inflation.

Looking ahead: “Following a stinging May CPI print, the latest PPI data confirm that inflation pressures continue to build across both the goods and services sectors, pressuring the [Fed] to act decisively to restore price stability,” U.S. economist Mahir Rasheed told clients in a note.

Market reaction: The Dow Jones Industrial Average DJIA, -0.67% and S&P 500 SPX, -0.42% were set to open slightly higher in Tuesday trades. Stocks have fallen tumbled in the past week over worries about high inflation and the prospect of a recession.

By Jeffry Bartash (marketwatch.com)

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