In May, the overall increase in the U.S. Producer Price Index (PPI) remained moderate, with the core PPI hitting its lowest level since August 2024, further indicating that tariffs have not yet imposed higher price pressures on consumers and businesses.
On Thursday, the U.S. Bureau of Labor Statistics released data showing:
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<li>U.S. May PPI year-on-year 2.6%, expected 2.6%, previous value 2.4%.</li>
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<ul>
<li>U.S. May core PPI year-on-year 3.0%, the lowest level since August 2024, expected 3.1%, previous value 3.1%.</li>
</ul>
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On a month-on-month basis, May PPI increased by only 0.1%, lower than economists' expectations of 0.2%. The core PPI also rose by just 0.1%, with commodity prices (excluding food and energy) increasing by 0.2% and service prices rising by 0.1%.
<h2>Moderate PPI Increase, Corporate Profits Under Pressure and Absorbing Tariff Costs</h2>
This PPI report continues the moderate performance of the Consumer Price Index (CPI) in May, which has shown four consecutive months of mild increases. Although the impact of tariff increases on the American public has been relatively mild so far, economists generally expect that as companies seek to hedge against further risks to profit margins, price pressures will emerge in the second half of this year.
Data shows that wholesale and retail profit margins expanded in May, particularly in the wholesale vehicle and machinery sectors, which had contracted in April. So far this year, U.S. corporate profit margins have been under continuous pressure, confirming that companies are absorbing tariff costs themselves and not passing them on to consumers.
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Excluding food and energy, commodity prices rose by 0.2%. Service prices increased by 0.1%, reflecting the recovery of wholesale profit margins.
The May PPI report also indicated that food prices rose slightly by 0.1% after declining for two consecutive months, while energy costs remained flat. The costs of intermediate demand processed goods, which reflect early price changes in the production chain, saw almost no increase, while unprocessed goods prices fell for the third consecutive month.
<h2>U.S. May Final Demand Service Prices Rebound, Commodity Prices Steadily Increase</h2>
Final demand service index rose by 0.1% in May, following a 0.4% decline in April. This increase was mainly due to a 0.4% rise in final demand trade service profit margins. The primary reason for the increase in final demand service prices in May was a 2.9% surge in wholesale profit margins for machinery and vehicles. Indices for accommodation services; retail of clothing, footwear, and accessories; alcohol retail; and system software publishing also saw increases
However, the price of air passenger services fell by 1.1%. Indices for furniture retail; securities brokerage, trading, investment consulting, and related services; as well as portfolio management also saw declines.
Final demand goods prices rose by 0.2% in May, following a slight increase of 0.1% in April. In the May final demand goods index, the price of tobacco products increased by 0.9%. Indices for gasoline, processed poultry, roasted coffee, residential natural gas, and oilseeds also experienced increases. In contrast, the price of jet fuel fell by 8.2%. Indices for pork and carbon steel scrap also saw declines.
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<h2>Focus on Federal Reserve Inflation Indicators and Trade Policy Impact</h2>
Analysts are also closely monitoring the PPI report, as some of its components are used to calculate the Federal Reserve's preferred inflation measure—the Personal Consumption Expenditures (PCE) price index. From the PPI sub-items related to PCE calculation, the price of air passenger services fell again by 1.1% month-on-month in May, following a decline of 1.8% in April.
After a 7.1% drop in portfolio management fees in April, there was another decline of 1% in May. Prices for home health and hospice care services remained flat, while outpatient service prices at hospitals fell by 0.3% month-on-month in April. The PCE report will be released later this month.
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After the data was released, traders fully digested the scenario of two rate cuts by the Federal Reserve within the year.
<h2>Market Reaction</h2>
Following the announcement, the dollar index fell about 20 points in the short term, currently reported at 97.70. U.S. stock futures saw a slight uptick, with the Nasdaq 100 index futures narrowing their decline to 0.5%.
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The yield on the U.S. 10-year Treasury bond fell in the short term, currently reported at 4.371%. Spot gold showed little fluctuation in the short term, currently reported at $3,384.72 per ounce.
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In May, the overall increase in the U.S. PPI remained moderate, with the core PPI hitting its lowest level since August 2024. Tariffs have not yet imposed higher price pressures on consumers and businesses. However, U.S. corporate profit margins continue to be under pressure, indicating that companies are absorbing tariff costs on their own. After the data was released, traders fully priced in the scenario of two rate cuts by the Federal Reserve within the year

- In May, the U.S. Producer Price Index (PPI) showed a moderate year-on-year increase of 2.6%, indicating that tariffs have not significantly raised price pressures on consumers and businesses.  
- The core PPI rose by 3.0%, with both overall and core PPI increasing by only 0.1% month-on-month, below economists' expectations.  
- Analysts are closely monitoring the PPI as it influences the Federal Reserve's preferred inflation measure, with market reactions showing a slight decline in the dollar index and fluctuations in U.S. stock futures.

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In May, the U.S. PPI rose moderately by 0.1% month-on-month, with core inflation dropping to a nearly one-year low, increasing expectations for two rate cuts by the Federal Reserve this year