U.S. producer prices rise above expectations in May

U.S. producer prices came in slightly stronger than expected in May, reversing most of the softness seen in April. The headline PPI rose 0.5 percent sequentially and 3.1 percent year-on-year. Meanwhile, the core rate came in at 0.3 percent sequentially and 2.3 percent year-on-year.

Most of the strength in the headline rate was mostly because of energy prices, which rose 4.6 percent over the month. Producer prices excluding food, energy and trade services rose modestly by 0.1 percent sequentially and 2.6 percent year-on-year. Overall, today’s report indicates towards stronger pipeline price pressure and is in line with projection of modest firming of inflation over forecast horizon, stated Barclays in a research report.

Goods prices rose 1 percent sequentially, owing to the energy component. Food PPI rose modestly. Goods excluding food and energy rose 0.3 percent, widely in line with the recent trend. Services PPI rose 0.3 percent underpinned by inflation in transportation & warehousing – a category that has been printing strong for four months in a row, and solid inflation in trade services. In business surveys such as the ISM, companies have been citing rising transportation costs resulting from a shortage of truckers and introduction of new regulations as a factor behind slower supplier deliveries. There appears to be upside risks to energy prices if the recent strength in global oil prices continue, noted Barclays.

In the meantime, personal consumption PPI rose strongly by 0.5 percent sequentially and 2.8 percent year-on-year. This is widely in line with the May CPI inflation report released recently. Stripping food & energy, personal consumption PPI rose 0.3 percent. The annual rate of inflation for these measures continue to be healthy and augurs well for inflation pressures in the coming months, said Barclays.

At 16:00 GMT the FxWirePro's Hourly Strength Index of US Dollar was bearish at -78.6278. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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