May’s producer price index saw a decrease in inflation to 1.1%.

Inflation Falls to 1.1% Annual Rate in May

The Bureau of Economic Analysis reported Wednesday morning that inflation fell to a 1.1% annual rate in May, as measured by the producer price index. On a month-to-month basis, the wholesale price index declined by 0.3%. This is some more encouraging inflation news a day after another key inflation report came back better than expected.

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This decrease is an indication that inflationary pressures are abating in the face of the Federal Reserve’s campaign to slow economy-wide spending by hiking interest rates. However, while the headline PPI numbers show wholesale inflation running at a healthy level, core inflation, which strips out movement in volatile food, energy, and transportation, is still hotter than is healthy. It clocked in at a 2.8% annual rate in May.

Wednesday’s PPI report comes a day after the consumer price index, which is even more closely watched, was released. The CPI fell to a 4% annual rate, a downward revision from the prior report. The annual CPI inflation rate has been trending down since peaking last June and is now running at the lowest level since March 2021, right around when the country’s inflationary woes first began. However, that 4% inflation is still about double what the Fed sees as healthy.

The Fed has been hiking rates for more than a year. Top central bank officials have been meeting for the past two days to decide whether to raise interest rates again. The new reports will undoubtedly be debated during the meeting, but most investors think the Fed will opt to pause rates for the first time since the tightening began.

• Investors assigned about a 94% chance that the Fed will pause rate hiking, according to CME Group’s FedWatch tool, which calculates the probability using futures contract prices for rates in the short-term market targeted by the Fed.

The central bank will make the announcement on its rate decision on Wednesday afternoon, and Fed Chairman Jerome Powell will address the nation during a news conference.

Stay tuned for more updates on the Fed’s decision and its impact on the economy.

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