Yesterday’s news on the strong jump in retail sales cheered equity investors. And for good reason: the 1.4% gain in consumer spending in May is the highest in 16 months. But in keeping with the spirit of the times, for every bit of good news, there lurks a new reason to worry.
Yesterday’s news on import prices, for instance, surprised on the upside, coming in at 0.9% last month, which was much higher than the consensus forecast.
Meanwhile, this morning’s producer price report for May offers another indication that pricing pressure may be staging a comeback in the wholesale world. Seasonally adjusted PPI advanced by 0.9% last month, up from 0.7% in April. On an annual basis, PPI rose by 3.9%. As our chart below shows, it’s clear that there’s inflationary pressures, while not necessarily fatal, remain a concern.
The optimistic view is that after stripping out food and energy, PPI still looks tame. Yes and no. It’s true that core PPI rose just 1.6% for the 12 months through May–less than half the pace for the top-line number. But the annual rate of 1.6% is unchanged from April. In fact, the annual rate of change in core PPI has been holding fairly steady in a range of 1.6% to 1.8% this year. The question: will the core rate be pulled up if the top-line pace continues to take flight? Looking beyond PPI one may wonder what’s in store for consumer prices, which have been showing signs of trending higher too. Tune in tomorrow for the May CPI report.