May 2018 Producer Price Index

Costs rose at an accelerating pace for producers and wholesalers in May 2018 according to the Bureau of Labor Statistic’s Producer Price Index.  After rising just 0.1 percent in April, this price proxy jumped 0.5 percent.  Compared to a year ago, this indicator is 3.1 percent higher, marking the fast year-over-year uptick since January 2012 when it reached the same level. 

While both goods and services prices increased, goods led the way.  Roughly 60 percent of the uptick is attributed to final demand goods which jumped 1.0 percent for the month.  Final demand services moved up 0.3 percent.  Subtracting food, energy, and trade services (leaving the core-PPI), prices edged up 0.1 percent (matching April’s tally) and climbed 2.6 percent versus a year earlier.

Earlier stage prices experienced acceleration as well.  Goods for intermediate demand jumped 1.5 percent in May compared to a 0.5 percent increase in April.  Year-over-year these wares are 6.5 percent more expensive, accelerating from 4.7 percent.  Unprocessed goods for intermediate demand jumped 2.5 percent after rising 0.9 percent a month earlier; this earliest stage for goods more than doubled its previous year-over-year tally hitting 6.8 percent.  Finally, early-stage services matched April’s 0.3 percent uptick, but the year-ago tally accelerated marginally to 3.3 percent from 3.1 percent. 

Inflation could be staging a comeback.  PPI’s trend is showing signs of acceleration, and the Consumer Price Index (CPI) exhibits a similar pattern.  However, the Federal Reserve’s preferred measure is still below their explicit target of 2.0 percent (read Atlas’ note on its latest release here), so the reaction by America’s central bank is likely to continue their measured approach to raising the overnight lending rate.  For now, the trend in inflation appears to be hastening as the current economic expansion turns nine years old.