U.S. producer price index rebounds in May on rise in food and energy prices

Producer prices in the U.S. rebounded in May. The producer price index rose 0.4 percent in the month, after coming in flat or declining in the prior four months. Price rises in volatile components such as food and energy drove the May rise. Excluding those two components, the producer price index came in flat.

“We have updated our PCE front-month model with the PPI components for May and now forecast that headline PCE rose 0.1 percent m/m and 0.5 percent y/y. For core PCE, we expect a reading of 0.0 percent m/m and 0.9 percent y/y”, said Barclays in a research report.

Delving into details, food PPI rebounded strongly in the month, rising 6 percent sequentially and 6.9 percent year-on-year. Within food, prices for processed items and those destined for exports rose especially strongly. Trade margins for grocery stores and the measure for core consumer goods more broadly had been rising in recent months, as retailers might have been building profit margins in the face of solid consumer demand for food at home. Nevertheless, trade margins dropped throughout the board in May and imply that a shock in underlying food price pressure probably drove the rise in May, noted Barclays.

Prices of airfare rose solidly after falling considerably for most of the year and provide an early indication that the travel industry might be starting to normalize after being hit especially hard by the lockdown measures put in place to mitigate the spread of COVID-19. In all, passenger transportation for final demand rose 12.3 percent sequentially, although the annual pace of inflation continues to be negative.

Prices at hotels and lodging away from continued to fall for the fourth straight month. On a sequential basis, prices fell 3.4 percent, whereas they dropped 19.5 percent year-on-year. This shows that the sector continues to suffer from the sharp fall in demand for such services.