The Producer Price Index (PPI) for final demand fell a seasonally adjusted 0.2% for May, according to a Labor Department report (link opens as PDF) released today.

"Final demand" is a more comprehensive indicator than that for finished goods alone. It includes goods, services, and construction sold for personal or government use, capital investment, and export.

After increasing 0.5% for March and 0.6% for April, this latest report proved to be an unpleasant surprise for analysts, who had expected a 0.1% rise. Although cheaper prices could mean cheaper purchases for consumers, it also means smaller sales for producers –- a key ingredient in the recipe for an economic slowdown. 

Ppi Monthly

Source: Labor Department 

Diving deeper, both services and goods prices were behind this latest dip, each down 0.2%. In a sign of some optimism, "core goods" prices (excluding food and energy) managed to remain at April levels. A 0.9% drop in gasoline prices accounted for around half of the entire drop in the final demand goods index.

While this latest report failed to live up to expectations, May's numbers come after two months of solid price improvements. With 12-month price changes at 2%, the second-highest reading since last July (also 2.0%), investors will need to wait for June's report to get a better feel for what is going on with producer prices.

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