U.S. Economic Brief || May Producer Price Index suggests pipeline inflationary pressures remain elevated

May Producer Price Index suggests pipeline inflationary pressures remain elevated

*The headline Producer Price Index (PPI) increased 0.8% m/m in May following a downwardly revised 0.4% gain in April, lowering the yr/yr increase 0.1pp to a still lofty 10.8%. Core PPI (excluding food, energy, and trade services) – a better gauge of underlying price pressures – advanced 0.5% over the month following a downwardly revised 0.4% increase in April, leaving the yr/yr change flat at 6.8% (Chart 1).

*Pipeline inflationary pressures continue to mount, suggesting that a moderation of inflation to levels consistent with the Fed’s 2% target will be a drawn-out process, with risks tilted to the upside. Prices of intermediate goods prices excluding food and energy accelerated in May, rising 1.7% m/m, the sharpest monthly increase since June of last year (Chart 2). Prices of materials and components for manufacturing jumped 2.1% m/m, while prices of materials for durable goods manufacturing advanced 4% over the month.

*May’s robust increase in producer prices partly reflects significant increases in energy commodity prices that pushed final demand energy and finished consumer energy goods prices up 5% and 4.7% m/m, respectively (Chart 3). With refined energy commodity prices up significantly in the first half of June, which look poised to remain elevated through the end of the month, energy prices will likely contribute to another robust m/m increase in producer and consumer prices in June. Moreover, these higher energy costs are likely contributing to sharp increases in distribution and transportation costs, with final demand transportation and warehousing services prices surging 2.9% m/m.

*However, even when excluding food and energy prices, goods prices continue to post sharp m/m gains. Nondurable consumer goods prices spiked 1% m/m, the steepest m/m increase since 2017, while durable consumer goods prices increased 0.7% m/m. Amid elevated inflation, which is eroding real disposable income, and slowing trend nominal wage growth, which is beginning to restrain consumer demand, May’s PPI print provides additional evidence that retail and wholesale margins are coming under further pressure. Prices for the trade of finished goods – a gauge of retailer and wholesaler margins – increased a modest 0.2% on the heels of a 0.6% decline in April, while prices of trade in personal consumption goods were flat in May after posting a 0.5% decline in April (Chart 4).

*Margins are likely to come under further pressure in coming months, reflecting the accumulated impact of elevated prices and steep increases in inventory-sales ratios within certain sectors at the retail and wholesale level that will lower the flexibility businesses have had in passing on rising costs to consumers.

Chart 1. Headline and Core (ex. food, energy, and trade services) PPI (yr/yr %)

Chart 2. Intermediate Materials (ex. Food and Energy) Old Methodology (yr/yr %)

Chart 3. Final Demand Finished Consumer Energy Goods (m/m %)

Chart 4. Final Demand Trade of Personal Consumption Goods

Mickey Levy, mickey.levy@berenberg-us.com

Mahmoud Abu Ghzalah, mahmoud.abughzalah@berenberg-us.com

© 2022 Berenberg Capital Markets, LLC, Member FINRA and SPIC

Remarks regarding foreign investors. The preparation of this document is subject to regulation by US law. The distribution of this document in other jurisdictions may be restricted by law, and persons, into whose possession this document comes, should inform themselves about, and observe, any such restrictions. United Kingdom This document is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers. Copyright BCM is a wholly owned subsidiary of Joh. Berenberg, Gossler & Co. KG (“Berenberg Bank”). BCM reserves all the rights in this document. No part of the document or its content may be rewritten, copied, photocopied or duplicated in any form by any means or redistributed without the BCM’s prior written consent. Berenberg Bank may distribute this commentary on a third party basis to its customers.

Member FINRA & SIPC
This email and any files or attachments transmitted with it may contain confidential or privileged information and are intended solely for the use of the intended recipient. If you are not the intended recipient, please do not copy, retain, disclose or use any part of the message or its attachments. Please notify the sender immediately by return email and destroy or delete any copies. Dissemination or use of this information by anyone other than the intended recipient is unauthorized and may be illegal. Communications by email cannot be guaranteed to be secure or error-free. Emails and their attachments are subject to being intercepted, becoming corrupted, getting lost or delayed, or may contain viruses. Therefore, neither the sender nor Berenberg Capital Markets LLC (BCM) accepts any liability for any errors or omissions in the content of this message or problems in its transmission, including those arising as a result of its transmission over the internet.
BCM does not assume liability for the correctness and completeness of all information given and/or attachments contained herein. The provided information has not been checked by a third party, especially an independent auditing firm. BCM explicitly points to the stated date of preparation. The information given can become incorrect due to passage of time and/or as a result of legal, political, economic or other changes. BCM does not assume responsibility to indicate such changes and/or to publish an updated document. Any document(s) or attachment(s) is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers.
In light of upcoming regulatory changes, please be informed that BCM will continue to share information with you until unsubscribe@berenberg-us.com receives your termination/deletion request. For more information about the General Data Protection Regulation (GDPR) and our privacy policies please refer to https://www.berenberg-us.com/legal-notice. BCM reserves all the rights in this communication. No part of this communication or its content may be rewritten, copied, photocopied or duplicated in any form by any means or redistributed without BCM’s prior written consent.
The information contained herein and sourced may have been adopted from various news sources, for example, Bloomberg, Reuters, Street Account and various other sources. BCM does not claim accuracy, completeness, timeliness, suitability, or otherwise regarding all the information on the securities, stock markets, or developments referred to within. On no account should the Content be regarded as a substitute for the recipient procuring information for himself/herself or exercising his/her own judgments. BCM is not responsible for any recipient(s) use of this information. This Content is not a solicitation or an offer to buy or sell any of the securities contained herein. This information does not constitute a recommendation or take into account the particular investment objectives, financial situations, or needs of clients. Clients should consider whether any advice or recommendation in this Content is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of securities which may be referred to in this Content and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain securities.