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Producer prices jump

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Producer prices jump

0.5% increase in PPI increases likelihood of interest rate hike this fall.

The Producer Price Index for final demand rose 0.5% in May, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices fell 0.4% in April and

advanced 0.2% in March. On an unadjusted basis, the final demand index declined 1.1% for the 12 months ended in May, the fourth straight 12-month decrease.

Analysts had expected an increase in May’s PPI of 0.4%.

The increase for the month can be traced to prices for goods, which rose 1.3%. The index for services was unchanged.

Approximately 80% if the increase in prices can be traced to energy costs, which rose 5.9%.  Excluding energy and food prices, the PPI increased 0.2% in May, compared to 0.1% decline in April.

Gasoline prices spiked 17% during the month, while food costs – largely the result of an outbreak of bird flu – rose 0.8%.

For the past 12 months, the PPI has fallen 1.1%, which is in line with analysts’ expectations.

The rise in wholesale inflation, if sustained, will likely trigger the Fed to enact its long-anticipated reduction in quantitative easing by raising interest rates in the fall – an act delayed by disappointing economic performance in the first part of the year.



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