Unexpected Wholesale Price Drop in May, a Sign Inflation Is Easing

By Katie Borchetta · June 13, 2024

For the second time in the past three months, United States wholesale prices fell, with the price index dropping 0.2% in May. The drop was largely due to a decrease in gas prices, which could be a sign that the increased inflation the U.S. has faced this year is on the decline.

The country’s 0.2% decrease was unanticipated; a poll produced by the Wall Street Journal had actually predicted a 0.1% increase. Also, for the first time this year, a separate wholesale price, which excludes volatile costs of food, energy, and trade margins, remained unchanged.

The Federal Reserve uses these core prices as a good predictor for the country’s future inflation. Not only did the report show a decrease in wholesale prices, but it was the first time there was no inflation increase in about two years. This information could be enough to spark the Reserve to cut interest rates by September, since wholesale costs often give future indicators of inflation trends.

Over the past year, core prices remained steady at 3.2%. The PPI report revealed the costs companies incur for supplies like packaging, which are often passed on to consumers and indicate inflation trends. Key details of the report include a 0.8% drop in goods prices and a decline in food prices. Service costs, the main driver of inflation, were unchanged last month after a significant increase the previous month. Over the past year, overall service prices have risen by 2.6%, nearing pre-pandemic levels. Inflation further down the supply chain showed a muted trend, with the wholesale cost of partly finished goods dropping by 1.5% and raw-material prices decreasing by 1.8%.

Overall, inflation remains above the Federal Reserve’s 2% annual target, but the latest CPI and PPI reports indicate progress. Currently, the Personal Consumption Expenditures (CPE) inflation rate stands at 2.7%, but the Fed anticipates only a slight decrease to around 2.6% by the end of the year, according to its latest forecast. This outlook raises questions about potential interest rate cuts, with at least one reduction expected this year and possibly two.