Producer Prices Rise Most Since May Last Year

Federal Reserve policy makers will have something special to talk about at today's FOMC finale, that is early signs of what may be long awaited inflationary pressures. May's producer prices final-demand index rose an almost fierce looking 0.4 percent for the hottest reading since May last year. The strength is tied not only to energy, which rose 2.8 percent in the month, but also to trade services which jumped 1.2 percent in the month in what may hint at the successful passing through of higher costs.

Prices excluding food & energy rose 0.3 percent, which along with April's matching gain, are the best two results since June last year. When excluding services, along with food & energy, prices fell 0.1 percent in the month.

Year-on-year rates in this report remain soft, at minus 0.1 percent overall and only plus 1.2 percent less food & energy, but the monthly gains are not only encouraging, they follow what are similar signs of strength in yesterday's import & export price report. The deflationary effects of last year's strength in the dollar and collapse in oil prices may now finally be clearing, providing a new floor from which prices will hopefully begin to rise. But this conjecture that awaits confirmation in tomorrow's consumer price report.

Recent History Of This Indicator:
Oil may be on the rise but producer prices, held back by stubborn weakness in service prices, have yet to show much benefit, rising 0.2 percent in April with only a 0.3 percent gain expected for May. April's core rate inched 0.1 percent higher and a 0.2 percent gain is expected for May. Year-on-year rates have been very subdued, unchanged for total producer prices and up only 0.9 percent for the core.