Producer Price Index Tumbles As Food and Energy Prices Drop

The prices paid to U.S. businesses fell in May, dragged down by falling prices for goods and energy that were partially offset by a rise in prices for services.

The Department of Labor said that its producer price index for “final demand” fell 0.3 percent in May, the third drop in the past four months. The measure tracks what businesses in the U.S. are paid for goods and services sold to their end-users in government, the household sector, nonprofits, and other businesses.

Economists had forecast a smaller decline of 0.1 percent.

The barometer of prices for goods fell 1.6 percent in May compared with the prior month. Compared with a year ago, goods prices are down 2.4 percent.

Much of the decline was driven by a drop in the price of energy. Energy prices fell 6.8 percent in May and are down 18.1 percent for the year. Food prices also fell, dropping 1.3 percent compared with April, bringing the year-0ver-year increase down to 0.3 percent.

Excluding food and energy, the prices of goods rose 0.1 percent, the same increase as seen in April. These so-called “core goods” prices are up 2.6 percent compared with May of last year.

Services prices increased by 0.2 percent and have been up in three of the past four months. The trade services metric, which measures margins received by wholesalers and retailers, rose one percent, the largest margin expansion this year. Transportation and warehouse servic es prices fell 1.4 percent.

Final demand services excluding trade, transportation, and warehousing—often called “core services”—rose 0.1 percent, the fifth consecutive monthly gain but the lowest of the year. Compared with a year ago, core services prices are up 3.7 percent.

The producer price index also measures prices for intermediate demand goods and services, business-to-business purchases made in preparation of final demand output. Price of processed goods for intermediate demand fell 1.5 percent, the fourth consecutive monthly decline, and are off by 7.1 percent. Services for intermediate demand saw prices rise 0.2 percent and are up 3.9 percent compared with a year ago.

The producer price index differs from the better known consumer price index in that it tracks what businesses receive for goods and services rather than what consumers pay. It does not count taxes or imports, which are included in CPI, but does count exports. It is sometimes referred to as a “wholesale price index,” although that term is misleading since the data is not particularly focused on wholesale prices.