WASHINGTON • Inflation pressures in the U.S. economy appear to be mild, with falling gasoline and food prices mostly offsetting increased costs for consumer services.
The producer-price index, a measure of the prices businesses receive for their goods and services, advanced a seasonally adjusted 0.1% in May from a month earlier, the Labor Department said Tuesday. When excluding the often-volatile food and energy categories, business prices were a somewhat stronger, up 0.2% from the prior month.
Declining prices for energy, including gasoline, food, and a volatile category known as trade services kept broader inflation in check last month. Trade services measures changes in margins received by wholesalers and retailers.
But prices for consumer services did push higher, led by an unusually large increase guest-room rentals. Costs for medical care and transportation also rose.
Service price increases are notable because it implies some upward pressure on the Federal Reserve’s preferred inflation gauge, the price index for personal-consumption expenditures. That measure, released later in the month, uses producer prices as an input for measuring services costs.
A rebound in underlying services costs suggests the Fed’s preferred measure, when excluding food and energy, is “edging up towards the 2% target,” Capital Economics economist Paul Ashworth wrote in a note. That measure rose 1.6% from a year earlier in April. The Fed aims for an annual inflation target of 2%, viewing that as indicating an economy with solid demand but not overheating.
Meanwhile, Ashworth said the latest data showed no evidence of price increases tied to tariffs on Chinese goods, but he doesn’t expect that impact to show up until the June report is released, at the earliest.
The broader picture is one of cooling inflation. Producer prices were up 1.8% in May from a year earlier, considerably less than the recent peak of up 3.4% reached last summer. Excluding food and energy, the index was up 2.3% from a year earlier.
The producer-price index measures inflation across a broad cross-section of the economy, because it captures the prices paid to businesses by other firms, the government and consumers. While the measure typically tracks other inflation gauges over time, it doesn’t always quickly translate into what consumers pay.
Policymakers, including those at the Fed, tend to pay much more attention to costs households see on store shelves and in their monthly bills. Businesses often have some flexibility in setting prices, based on current and expected demand, and whether they believe they can pass along increased costs to customers or must instead accept smaller profits.
Prices paid by the average American, measured by the consumer-price index, rose 2.0% in April from a year earlier. The Labor Department releases fresh consumer-price figures Wednesday. Economists project consumer price gains cooled to a 1.9% advance from a year earlier.