Inflation, as measured by the producer price index, declined to 2.2% for the year ending in May, the Bureau of Labor Statistics reported Thursday in good news for the Federal Reserve as it seeks to bring the economy back to normal conditions.
The decline is an encouraging sign for the economy, which has been strained under the burden of inflation. The PPI is a measure of inflation based on prices paid by producers, rather than consumers.
The downward dip was not expected. Most forecasters anticipated PPI inflation to rise for the year ending in May, so the numbers bode well for the Fed and households.
On a month-to-month basis, the wholesale price index fell by 0.2%.
The most recent reading of the more closely watched consumer price index, released Wednesday, showed that inflation fell one-tenth of a percentage point to 3.3% for the year ending in May.
The Fed wants inflation to run at 2%, so while there has been progress in bringing inflation down from its peak of about 9% in 2022, there is still a way to go for the central bank.
This week, the Fed announced it would keep its interest rate target at 5.25% to 5.50%. The move was widely telegraphed.
Fed officials said there has been “modest” further progress in bringing down inflation in recent months, but are split on where interest rates will be by the end of the year, with most, though not all, thinking there will be at least one rate cut this year.
On Wednesday, officials said they see inflation, as gauged by the personal consumption expenditures index, falling to 2.6% by the end of 2024. That is less of a decline than the 2.4% predicted in March.
One reason the Fed has held off on cutting rates, up this point, is that job gains have remained strong, signaling that the economy may not be losing steam.
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The economy added 272,000 jobs in May, and the unemployment rate rose one-tenth of a percentage point to 4%, the Bureau of Labor Statistics reported last Friday.
GDP growth has also remained positive. The Bureau of Economic Analysis found that GDP expanded at a 1.3% seasonally adjusted annual rate in the first quarter of this year.