US producer prices unexpectedly fall in May

WASHINGTON (Reuters) – U.S. producer prices unexpectedly fell in May amid lower energy costs, another indication that inflation was subsiding after surging in the first quarter.

The producer price index for final demand dropped 0.2% last month after advancing by an unrevised 0.5% in April, the Labor Department’s Bureau of Labor Statistics said on Thursday.

Economists polled by Reuters had forecast the PPI nudging up 0.1%. In the 12 months through May, the PPI increased 2.2% after rising 2.3% in April.

Government data on Wednesday showed consumer prices unchanged in May for the first time in nearly two years, boosting financial market hopes that the Federal Reserve would start cutting interest rates in September.

The U.S. central bank on Wednesday kept its benchmark overnight interest rate in the current 5.25%-5.50% range, where it has been since last July. The Fed has raised its policy rate by 525 basis points since March 2022 to stamp out inflation.

Also on Wednesday, Fed officials pushed out the start of rate cuts to perhaps as late as December, with policymakers projecting only a single quarter-percentage-point reduction for this year. Economists remained optimistic that the Fed would reduce borrowing costs twice this year, starting in September.

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama)