By Tom Burnett CFA
On June 15, 2021, the Bureau of Labor Statistics released its May report on Producer Price Index (“PPI”) movements. The Index rose 0.8% in May, after rising 0.6% in April and 1.0% in March. The Index advanced 6.6% for the 12 months ended in May, the largest increase since 12-month data were first released in November 2010. A good deal of the large 12-month increase is due to the sharp recovery in crude oil prices which sold for less than $20 per barrel in the spring of 2020 and rose above $60 during the month of May.
Prices for ‘core’ elements, excluding food and energy items, rose by 0.7% in May, the same as for April. For the 12 months ended in May, the ‘core’ index rose 5.3%, the largest increase since 12-month data were first calculated in August 2014.
The large PPI increase in May will put pressure on the Federal Reserve to consider changing its current accommodative policies. Interest rates did not move dramatically on the PPI news and the 10-year Treasury continues to trade in the 1.5% area. Investors will be watching carefully for comments when the Federal Reserve issues its public statements after the Open Market Committee meeting on Wednesday June 16.
The next PPI report will be issued on July 14, 2021, for the month of June.
Tom Burnett CFA is Director of Research