March 2, 2024

Producer prices rose faster in May in nearly 11 years as inflation continued to build in the US economy, the Department of Labor reported Tuesday.

The 6.6% increase was the largest increase in the final demand index in the past 12 months since the Bureau of Labor Statistics began collecting data in November 2010.

On a monthly basis, the producer price index for final demand rose 0.8%, ahead of the Dow Jones estimate of 0.5%.

That higher price pressure came amid a sharp drop in retail sales, which fell 1.3% in May, which was worse than the 0.6% estimate, according to the Census Bureau.

Goods inflation remained the dominant inflationary force, increasing 1.5% versus a 0.6% increase in services. In the pandemic economy, goods are way ahead of services as economic barriers constrained consumer demand for service-related purchases.

Excluding food and energy, the 12-month terminal demand PPI rose 5.3%, which was also the largest increase since the BLS began tracking that number in August 2014.

Significant price increases on the manufacturer side came from non-ferrous metals, which rose by 6.9% over the course of the month. Grain prices also rose 25.7%, oil seeds rose 19.5%, and beef and veal rose 10.5%. Fresh fruit and melons were down 1.9%, while large organic chemicals and asphalt were also down.

Although services continued to be a smaller contributor to overall producer price pressures, the index rose for the fifth consecutive month.

The higher numbers are likely to add to an ongoing debate about whether the inflationary pressures of the past few months will continue.

Federal Reserve officials believe the current spike will prove temporary as supply and demand issues balance out and low levels are flushed out of the system during the pandemic lockdown.

However, several notable Wall Street names including Bank of America CEO Brian Moynihan and hedge fund billionaire Paul Tudor Jones told CNBC on Monday that it was time for the Fed to reverse the policy put in place during the pandemic to withdraw of easy money.

The Fed kicks off a two-day meeting on Tuesday at which no major monetary policy changes are expected to be announced.

While inflation data has caught the attention of the street, consumers have withdrawn their purchases as the impact of government economic controls wore off.

Excluding cars, retail sales fell 0.7% in May, well below the 0.5% estimate. Without petrol stations, sales fell by 1.5%.

Sales in building materials and gardening supplies were down 5.9% during the month, while sales in other stores were down 5% and sales in general merchandise were down 3.3%. Clothing and accessories stores grew 2%, while bars and restaurants grew 1.8%.

Sales are now dramatically higher than a year ago when the country faced a pandemic that left 22 million people unemployed.

Clothing and accessories sales increased 200.3% from May 2020, while hospitality and restaurants increased 70.6% and electrical and home appliance stores increased 91.3%.

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