Investment Strategy Network

After a sizable increase in producer prices last month, prices moderated with a slight drop reaching 2.4% annualized. This is a welcome slowdown as recent increases were starting to indicate a potential long term increase that could lead to inflation at the consumer level. With a spread of 0.5% between the CPI and PPI and with several months of trending increases, the Fed may decide to raise bank rates today in an effort to return to “normal” interest rates. Normal bank interest rates at the Fed are considered to be 3.0%.

After last month’s increase of 2.2% the consumer price index moderated this month and moved down to 1.9% when measured over the past 12 months. This is slightly higher than the 10-year average of 1.6% and lower than the Fed target of 2.0%. The move was created by a 0.1% drop in May that came about primarily due to reductions in energy overall, and specifically gasoline. Food was slightly up by 0.2%. Energy related products remain the major influence in fluctuations in the index while most other prices remain stable.