WASHINGTON – Inflation at the wholesale level, remained unchanged in May as food and energy prices slipped.
The Labor Department said Tuesday the producer price index, which measures inflation before it reaches the consumer, was flat in May after a 0.5 percent monthly gain in April. Over the past 12 months, producer prices have risen 2.4 percent — with the rising gasoline and natural gas costs is a key driver.
An increase in the prices of energy and other commodities, the past year had pushed producer prices higher. But the trend weakened slightly in May, ahead of the Federal Reserve’s June meeting on Tuesday and Wednesday to assess the possibility of raising a key interest rate in response to the relatively strong labour market.
Most analysts are of the view that the Fed will agree on Wednesday to raise the federal funds rate — what banks charge each other for short-term loans. This would probably be slightly more expensive to borrow and could dampen inflation as the interest rate continues to rise.
The federal funds rate is exceptionally low. The Fed cut to a record low near zero during the financial crisis of 2008 and remained there seven years to boost the economy and prevent deflation. But since December 2015, it is prudent to increase the rates, the move of the interest rate three times in small quarter-point steps.
Many analysts expect the Fed to raise rates by a total of three times this year. That would compare with just a few increases in both 2015 and 2016.
For producer prices, energy and food costs weakened in May, with a break of 12 months trend.
Energy prices declined by 3 percent in May, while food prices ticked down 0.2 percent. The prices have increased for services such as car hire and retail in clothing, jewelry, shoes, and accessories.
Core inflation at the wholesale level, excluding food, energy and trade services, fell 0.1 percent in May, but rose 2.1 percent more than 12 months.