Producer Price Inflation Eases to Only 0.7% in May, The Smallest Annual Increase in More Than 3.5 Yrs.

The BLS reported today on producer prices for May, here are some highlights:

1. Prices for finished goods fell 1% in May from April, and increased annually by only 0.7% through May, the eighth straight month of slowing year-over-year producer inflation following a 7% increase for the 12 months through September 2011.  It was the smallest annual increase in producer price inflation for finished goods since October 2009 more than three and-a-half years ago (see brown line in chart above). 

2. Intermediate goods fell by 0.8% on an annual basis through May, the first annual deflation in intermediate goods since November 2009 (see red line in chart).

3. Prices for crude goods fell by 3.2% from May last year (see blue line), led by sharp declines in food (-2.3%) and energy prices (-5%).

MP: Overall, the ongoing, declining inflation rates for producer prices that have been happening for the last year, along with price deflation now for crude and intermediates goods, should ease some of the fears of inflationary pressures at the consumer level. Falling raw material costs for producers means that there won't be any input-cost based incentives to raise prices on consumer goods, and we can expect low and stable consumer inflation through the rest of this year.  

For example, inflation expectations from the bond market, measured by the breakeven rate for 10-year treasuries (nominal yield minus the real TIPS yield) have been trending downward for the last three months, falling from 2.4% in early April to 2.1% in recent trading, see chart below from Bloomberg.