Inflation as measured by producer wholesale prices ticked down to a still-smoldering 10.8% for the year ending in May, according to a report Tuesday from the Bureau of Labor Statistics, near the highest on record.
Tuesday’s news signals more pain to come for households. The producer price index gauges the wholesale prices of goods, which are eventually passed down to consumers.
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The report comes just days after a report for the month of May found that consumer prices increased a bruising 8.6% on the year — the fastest annual rate in four decades. The high rate of inflation has damaged President Joe Biden politically and undercut support for his spending proposals.
“Prices this high signal a supply and demand imbalance,” Consumer Brands Association CEO Geoff Freeman told the Washington Examiner. “[Consumer packaged goods] companies are asking not only how much critical commodities will cost, but if they can find them at all.”
In order to drive down inflation, the Federal Reserve has begun hiking interest rates. The central bank announced in March that it would raise its interest rate target by a quarter of a percentage point and then hiked rates by half a percentage point last month.
The Fed is meeting this week to decide how much to raise interest rates in June. Prior to Friday’s consumer price index report, it was a near certainty that the central bank would conduct another hike of 50 basis points, but after the bad report, investors now see a significant possibility that the Federal Open Market Committee conducts a 75 basis point hike — an aggressive tack that hasn’t been taken since 1994.
“Following a stinging May CPI print, the latest PPI data confirm that inflation pressures continue to build across both the goods and services sectors, pressuring the FOMC to act decisively to restore price stability,” economists from Oxford Economics said. “However, the Fed’s blunt toolkit won’t do much to alleviate supply side disruptions, which remain plagued by the ongoing war in Ukraine and re-imposed social distancing measures in China.”
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The S&P 500 fell into a bear market on Monday, an indication that investors are worried about the economy’s future as interest rates rise. The S&P 500 fell nearly 3.9% at close, while the Dow Jones Industrial Average lost more than 875 points and the Nasdaq composite shed about 4.7% of its value.
A survey, conducted by the Financial Times in partnership with the University of Chicago’s Booth School of Business and released on Monday, found that 68% of the leading academic economists surveyed believe the most likely timing of a recession will be sometime next year.
