Producer Prices: Modest Rebound, But Core Services Lower

Bottom Line: Energy and food prices rebounded sharply in May, driving the headline producer price index gains for the month well above expectations. Two-thirds of the increase in final demand goods came from a 40% increase in meat prices as many processing plants shut down amid outbreaks of the Covid-19 novel coronavirus. Core service prices, though, were lower for the second-straight month. Some of the declines in May can be attributed to lower fees in the brokerage and asset management sector, where fees were calculated based on lower asset prices in April. Expect that sector to see a rebound as stock prices have rebounded. Overall, despite tremendous volatility, the trend in producer prices is mostly to the downside. The PPI ROSE by 0.4% in May, compared with market expectations for an increase of 0.1%. Overall producer prices are 0.8% BELOW the year-ago level. The Goods PPI ROSE by 1.6% in May but is now 3.1% BELOW its year-ago level. Food prices rose by 6.0% and are now 6.8% ABOVE their year-ago level. Meanwhile, energy prices rose by 4.5%. but are now 25.2% BELOW their year-ago level. The Goods PPI less food and energy was UNCHANGED and is now 0.2% ABOVE its year-ago level. The Services PPI FELL by 0.2% in May but is now 0.3% ABOVE its year-ago level. The Core PPI FELL by 0.1%, compared with market expectations for a decline of 0.1%. Core producer prices are now 0.3% ABOVE their year-ago level.