Producer prices rose strongly in May, hinting at a possible turnaround in the recent trend of negative inflation.
The producer price index rose 0.5 percent in May, adjusted for seasonal fluctuations, the Bureau of Labor Statistics reported Friday. The increase is one of the biggest monthly gains in years.
Annual inflation was still negative for the year through May, at negative 1.1 percent. But the year-over-year decrease in prices has slowed from negative 1.3 percent through April.
The producer price index measures prices received by producers, such as factories, farms, and utilities, for selling goods. Along with the Consumer Price Index, which measures the prices paid for goods by consumers, it is one of the major price indices calculated by the U.S. government.
The majority of the uptick in producer price inflation in May, 80 percent, was attributable to an increase in energy costs.
A collapse in the price of oil last year and a strengthened dollar has sent U.S. inflation negative in recent months.
The decline in energy prices has provided a boost to the purchasing power of U.S. consumers, amid slow nominal wage gains in recent months.
The effects of energy prices have also complicated the plans of the Federal Reserve to raise its target for interest rates later this year.
The central bank has stated that it will move to raise rates, held at zero since 2008, when it is “reasonably confident” that inflation will rise to its 2 percent target over the medium term.
Officials like chairwoman Janet Yellen have said that they expect inflation to move toward the target when the transitory effects of last year’s oil price decline have worked their way through the economy. Higher month-to-month inflation would help solidify their expectations.
The Fed’s monetary policy committee is set to meet next week in Washington. Most investors do not expect them to change policy at the meeting, and instead act in September.
The Consumer Price Index will be updated for May by the Bureau of Labor Statistic on Thursday, after the Fed’s meeting concludes on Wednesday. In April, consumer inflation was negative 0.2 percent annually, but stripping out energy and food prices it was 1.8 percent.
The Fed favors a separate gauge, the price index for personal consumption expenditures. In that measure, annual inflation was just 0.1 percent in April, and inflation less food and energy was 1.2 percent.
