The wholesale measure of inflation, the Producer Price Index (PPI), lost momentum in May according to the Bureau of Labor Statistics. The 0.2 percent increase is a welcomed slowdown from the 0.8 percent rate in April. Year-over-year the increase moved up to 7 percent from 6.6 percent in the prior month.
Energy managed to tack on 1.5 percent after April’s 2.5 percent gain. Gasoline ticked up 2.7 percent after jumping 3.6 percent. The other erratic inflation component, food, fell 1.4 percent. Extracting edibles and energy provides a more stable reading called the core, and it matched the headline reading of 0.2 percent.
As we look for indications of future price pressures, we can turn to the crude component of the report. It looks at raw materials as they enter the market place for the first time. This component of the report lost 4.1 percent. This includes losses of 5.2 percent and 4.4 percent for energy and food respectively. It now has a three month average of -0.2 percent. The core crude number fell 0.9 percent and has now lost 0.7 percent in the last three months after having a gain of 10 percent between November 2010 and February 2011. Many are concerned about inflation, and this may be the first sign that the recent price increases are reversing as Fed head Ben Bernanke suggested they might. As prices ease in the essentials (e.g., food and energy), it will free up capital to be spent other places within our economy.