Producer prices rise at fastest recorded yearly rate

Prices charged by producers for goods and services rose 5.3 percent in the 12 months leading into May, according to data released Tuesday by the Labor Department.

The producer price index (PPI) for final demand — not parts or components — rose at the fattest unadjusted annual rate since the Labor Department began calculating yearly data in 2010.

The jump in the May PPI is the latest glimpse into a widely expected but politically challenging increase in inflation. 

President Biden, his top economic officials and the Federal Reserve have expressed confidence that inflation will fall back to moderate levels once the global economy is unhindered by the coronavirus pandemic. The White House, Fed and a broad range of economists say the faster pace of price increases is just a quirk of short-term supply shortages and bottlenecks, along with statistical quirks.

Even so, Republican lawmakers and inflation hawks insist the White House and Fed are downplaying the risk that trillions in fiscal and monetary stimulus could spur uncontainable inflation.

Price for final demand also rose 1.5 percent in between May and April after rising 0.6 percent the previous months. Rising prices for goods and services not related to food or energy drove more than 40 percent of May’s price increase, reflecting high demand for many items in short supply.

Prices for food and energy products and services, which are typically more volatile, rose 2.6 percent and 2.2 percent each.

Producers have struggled for months to catch up to a rebound in consumer demand for goods and services that fell off during the coronavirus recession. Shortages of crucial parts, manufacturing workers, available shipping containers and bottlenecks throughout global supply chains have forced producers to compensate by raising prices.

Demand for retail and wholesale services rose 0.7 percent and demand for transportation and warehousing rose 1.9 percent in May as producers scrambled to meet orders. Prices for lumber also soared 15.5 percent amid a national shortage that has reversed since June began.

The record-breaking annual jump in the PPI also reflects a sharp rebound from a steep decline in prices last year. Since prices fell drastically during the onset of the pandemic, the subsequent recovery has also appeared sharp.

“The ongoing mismatch between supply and demand continues to fuel price pressures, while the influence of base effects after last spring’s collapse in prices likely peaked last month,” wrote Mahir Rasheed and Gregory Daco of Oxford Economics in a Tuesday analysis.

Even so, most economists expect the rate of price increases to settle down as the economy hits a more sustainable pace.

“Looking past the noise, producer price increases will slow as supply constraints relax and recalibrate to demand in the second half of 2021,” Rasheed and Daco wrote. “With inflation expectations cooling and fiscal stimulus fading, we continue to share the Fed’s view that we are not entering an environment of spiraling prices.”

Updated at 9:48 a.m.