PPI Inflation creeps upward

Overall finished goods PPI prices fell by less than expected, declining 0.3% in May. Over the last 12 months, overall PPI prices have risen 5.3%. Core finished goods PPI prices were higher than consensus forecasts, rising 0.2% in May. This resulted in the year-over-year core PPI inflation rate picking up to 1.3% in May from 1.0% in April.

BOTTOM LINE

Although headline finished goods prices declined again on lower food and energy prices in May, core finished goods price inflation appears to be creeping higher (a similar theme has been apparent in the import price data in recent months despite the appreciation of the dollar against the Euro). These data, however, are unlikely to trouble the majority at the Fed since inflation expectations are contained according to the University of Michigan survey and there is still plenty of slack in labor markets. The earliest we would expect the Fed to move is March of next year and it we think the balance of risks are heavily tilted to it being later than that date.

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