Wholesale prices in the U.S. rose a seasonally adjusted 0.8 percent in June for May, mostly because of surging gasoline prices, according to a report Friday from the Bureau of Labor Statistics.
The biggest monthly climb in the Producer Price Index since last September was paced by a 2.9 percent surge in the energy component, led by a 7.2 percent spike in wholesale gasoline prices. In April, total PPI declined 0.7 percent, but rebounded to rise 0.5 percent in May. Food prices, another volatile component, increased 0.2 percent in June, following a 0.6 percent jump in May. The index for meats rose 4.2 percent in June, leading the gainers in the food category.
Over that last year, the PPI – which measures the average change in prices received by U.S. producers of goods and services – has risen 2.5 percent, significantly higher than the 1.8 percent increase in May and the highest year-over-year increase since March 2012, when the index gained 2.8 percent.
Excluding food and energy, which are known to have wide monthly fluctuations, the so-called “core” PPI rose 0.2 percent in June, after a 0.1 percent increase in each of the two prior months. It was the eighth straight monthly advance in core PPI. Passenger cars were a big contributor to the rise in June, jumping 0.8 percent.
June’s figures topped economist expectations a 0.4 percent rise in headline PPI and a 0.1 percent climb in core PPI.
Core PPI, or core inflation at the wholesale level, has risen 1.7 percent in the 12 months through June. Economists and the markets pay close attention to this rate as a barometer of potential actions of the Federal Reserve to adjust stimulus policies. The Fed has an annual target of 2.0 percent inflation and monthly readings below that level support the idea of continuing the large purchases of Treasuries and securities each month and keeping key interest rates extremely low. On the other hand, although it’s only one month of data, the spike in June in headline PPI will add an arrow to the quiver of those arguing for the Fed to start tapering its stimulus package.
In a separate report on Friday, the Thomson Reuters/University of Michigan’s preliminary reading on their consumer sentiment index slipped to 83.9 in July from 84.1 at the end of June. Economists were expecting a rise to 84.8. Inside the overall figure, the barometer of current economic conditions soared to 99.7 from 93.8, marking the highest level in six years. Offsetting that mood, though, the reading of consumer expectations (i.e. the future of the ongoing economic recovery) dipped to 73.8 from 77.8 in June.
Wall Street is holding a tight range in early Friday trading following the economic reports. The Dow Jones is adding modestly to its record closing price on Thursday, advancing by 17 points, while the S&P 500 is flat and the Nasdaq has edged up by 6 points.