Producer Price Index Rises More Than Expected

The U.S. Labor Department's Producer Price Index (PPI) released on May 17 gave the Federal Open Market Committee two additional reasons to raise the federal funds target rate to 3.25% when next it meets on June 29 and 30. Both the overall PPI and the so-called core PPI, which does not include price changes for food and fuel, rose more than expected in April. Both are closely watched measures of inflation.

The PPI for finished goods increased at a seasonally adjusted rate of six-tenths of a percent in April and the core PPI increased three-tenths. Economists generally expected a four-tenths rise in the overall PPI and a three-tenths increase in the core PPI.

Not surprisingly, the Labor Department attributed much of April's increase in the PPI to a 2.1% advance in the energy goods index.

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