U.S. producer price index accelerated 6.6% in the 12 months through May, stoking inflation worries further, while retail sales dropped 1.3% with spending rotating back to services from goods as Americans travel and engage in other leisure activities
Despite last month's decline reported by the Commerce Department on Tuesday, the trend in retail sales remains strong. Sales in April were revised sharply up and are well above their pre-pandemic level, keeping intact expectations of double-digit growth in both consumer spending and the economy this quarter.
During the pandemic, demand shifted to goods like electronics and motor vehicles as millions of people worked from home, switched to online classes and avoided public transportation. More than half of eligible Americans are fully vaccinated, boosting demand for air travel, hotel accommodation, dining out and entertainment among other activities.
Excluding automobiles, gasoline, building materials and food services, retail sales dropped 0.7% after a revised 0.4% fall in April. These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. In a separate report on Tuesday, the Labor Department said its producer price index for final demand increased 0.8% last month after rising 0.6% in April. In the 12 months through May, the PPI accelerated 6.6%, the largest gain since November 2010, after advancing 6.2% in April.
"Inflationary pressures are strong in the U.S. right now but should cool in the second half of the year," said Bill Adams, an economist at PNC Financial in Pittsburgh, Pennsylvania. "The Fed is expected to reiterate tomorrow that more progress toward a recovery is needed before they slow their bond purchases."
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