Following another month of cooler than expected CPI, US Producer Prices followed and printed well below expectations in May (if not quite the plunge observed last month), rising only 0.1%, below the +0.2% MoM exp (but we note that just like March's 0.4% MoM decline was revised up to unchanged, so May's -0.5% drop has been also revised higher to -0.2%). Meanwhile, the headline print posted a modest increase, rising from an upward revised 2.5% in April (from 2.4%) to 2.6% in May.

But while headline PPI posted a modest annual increase, core PPI continued to slide, rising just 3.0% in May, the lowest since August 2024 (below the 3.1% estimate), down from an upward revised 3.2% in May, as a result of a 0.1% monthly increase in core PPI, which also missed expectations of a 0.3% increase.

Looking at the PPI components that matter for PCE calculation, airline passenger services contracted another 1.1% m/m in May, after a 1.8% decline in April. Portfolio management contracted 1% after a 7.1% decline in April. Home health and hospice care flat, and hospital outpatient care contracted 0.3% m/m in April.

Under the hood, prices for final demand services rebounded 0.1% in May, reversing the 0.7% plunge in April which was the largest (pre-revision) decline since the index began in December 2009, driven by portfolio management services. 

Taking a closer look at the components:

Margin pressure remains on American corporations, which confirms that companies are eating tariff costs.

In other words, despite all the FUD, companies are soaking up any tariff price increases and NOT passing them on to customers.