The increase in producer prices (PPI) in the US in May fell short of economists' expectations, showing that price pressures remained limited at the beginning of summer. Meanwhile, US President Donald Trump is preparing to announce new tariffs on trading partners as July 9 approaches.
According to data released Thursday by the Bureau of Labor Statistics, part of the U.S. Department of Labor, the Producer Price Index (PPI) rose only 0.1 percent month-on-month in May, bringing the annual inflation rate to 2.6 percent. This rate fell short of economists' expectations of a 0.2 percent increase, according to a Bloomberg survey. The core PPI, which excludes energy and food prices, also showed a modest increase of 0.1%.
Increases in service and goods prices remained limited
The data shows that non-food and non-energy goods prices rose by 0.2%, while service prices increased by 0.1%. The increase in the service sector was supported by the recovery in wholesale sales of vehicles and machinery. The recovery in this category, which had declined in April, also led to an increase in retail and wholesale margins.
As of May, it is noteworthy that inflationary pressure in the US economy has remained low for four months. The Consumer Price Index (CPI) released the day before also showed a similar picture, indicating that companies are struggling to raise prices.
New tariffs from Trump: Diplomatic move before July 9
The week the PPI report was released also saw some busy developments in US foreign trade. President Trump imposed new tariffs on various countries in April, but in the latest agreement with China, he kept most of the previous tariffs in place.
Speaking to reporters this week, Trump announced that they would be sending new tariff letters to many countries within the next one to two weeks. These letters are expected to contain the details of the new tax regulations planned to take effect on July 9. Trump said, “We're sending the letters soon. What we did to the European Union, we're now going to do to other countries.”
Fed's inflation indicator also slows down
Some parts of the PPI data directly contribute to the Personal Consumption Expenditures (PCE) index, which is closely monitored by the US Federal Reserve (Fed). These sub-data for May also showed a weak picture. In particular, airline ticket prices and portfolio management fees fell, while healthcare spending remained stable. The full PCE data will be released later this month.
Trump's tariff announcements and weak inflation data also affected the markets. As of Thursday morning, S&P 500 futures were down 0.3%, Nasdaq 100 was down 0.2%, and Dow Jones futures were down 179 points, or about 0.4%. All these developments are causing markets and investors to turn their attention to July 9. Although Trump said that the negotiation process may take a little longer, he also stated that they would not need any additional time. “We have made a great deal with China. We are in talks with Japan, South Korea, and many other countries,” he said.
The continued weak inflationary pressures in the US and the re-tightening of trade policies are among the key issues that will determine the direction of the markets in the coming period.
