US producer inflation subsides as energy, food prices drop

U.S. producer prices fell more than expected in May as the costs of energy goods and food declined, signaling that inflation pressures were abating throughout the economy and could eventually provide relief to consumers.

The report from the Labor Department on Wednesday also showed the annual increase in producer inflation last month was the smallest in nearly 2-1/2 years. Underlying producer prices were muted. It followed data on Tuesday showing consumer prices edging up in May, with the year-on-year rise the smallest since March 2021.

The Federal Reserve kept interest rates unchanged on Wednesday for the first time since March 2022 when the U.S. central bank embarked on its fastest monetary policy tightening campaign in more than 40 years.

The Fed, which has hiked its policy rate by 500 basis points in this tightening cycle, signaled in new economic projections that borrowing costs will likely rise by another half of a percentage point by the end of this year because of the economy’s resilience, particularly the labor market.

“There aren’t as many factory price increases in the pipeline waiting in ambush for consumers and that spells relief for the inflation-weary American public,” said Christopher Rupkey, chief economist at FWDBONDS in New York.

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