US May Producer Prices Up 10.8%... Inflation Concerns Ahead of FOMC (Summary)

[Asia Economy New York=Special Correspondent Joselgina] In the United States, suffering from the highest inflation in about 41 years, an additional indicator showing that such price pressures are not easing has emerged a day before the Federal Reserve's (Fed) key interest rate decision. This is expected to further strengthen the Fed's tightening stance. In the market, there are also expectations that the Fed will take a 'giant step' by raising interest rates by 0.75 percentage points at once.

The U.S. Department of Labor announced on the 14th (local time) that the Producer Price Index (PPI) for May rose 0.8% from the previous month and 10.8% from the same month last year. Although this is lower than the record highs seen in March (11.5%) and April (10.9%), which were affected by Russia's invasion of Ukraine, it remains close to the peak. In particular, the monthly increase rate soared to twice that of April (0.4%).

Specifically, wholesale prices for goods rose 1.4% and wholesale prices for services rose 0.4% compared to the previous month. Energy led the overall rise, jumping 5% due to the surge in oil prices. The market expects that the increase in wholesale prices will be passed on to consumer prices, potentially prolonging inflation longer than anticipated. Russia's prolonged invasion of Ukraine, a major factor fueling inflation, and China's COVID-19 lockdowns are also negatively impacting supply chains.

These inflation indicators are particularly noteworthy as they were released during the two-day June Federal Open Market Committee (FOMC) regular meeting of the Fed, which began on the same day.

Previously, the U.S. May Consumer Price Index (CPI) inflation rate (8.6%) hit the highest level since December 1981, and the expected inflation rate over the next year by U.S. consumers (6.6%) also recorded a new all-time high. With the PPI inflation rate approaching the 11% level, the Fed's pressure to achieve 'price stability' can only increase.

On Wall Street, voices are growing that the Fed may take a giant step at this month's FOMC. On the afternoon of the previous day, major media outlets such as The Wall Street Journal (WSJ), Bloomberg, CNBC, and The New York Times (NYT) simultaneously reported the possibility of a giant step based on their own forecasts. The flood of such reports during the blackout period when Fed officials are prohibited from public comments has led to analysis that there might have been communication with the authorities. Major U.S. investment banks such as JPMorgan Chase and Goldman Sachs also weighed in favor of a 0.75 percentage point increase.