U.S. producer prices fall in May, bolstering speculation of Fed rate hike pause

WASHINGTON (Reuters) – U.S. producer prices fell more sharply than expected in May, bolstering speculation that the Federal Reserve will pause in rate hikes on Wednesday.

The producer price index (PPI) for final demand fell 0.3% last month, helped by falling energy costs, after rising 0.2% in April, shows Department of Labor statistics.

The year-on-year rise fell from 2.3% to 1.1%, the smallest increase since December 2020.

Economists polled by Reuters on average had forecast a 0.1% month-on-month decline and a 1.5% year-on-year increase.

On Tuesday, the Labor Department announced that the consumer price index had slowed more than expected, rising 4% year on year. This is its smallest increase since March 2021.

Market expectations are for Fed officials to keep the federal funds rate target in the 5%-5.25% range, marking the first time a pause in the current cycle.

The central bank, which has raised rates by 500 basis points since March 2022, could, however, raise them again in July, given the resilience of the economy, in particular the labor market.

(Lucia Mutikani, French version Laetitia Volga, edited by Kate Entringer)