The inflation rate in Tuesday’s producer price index report was down by 0.5 percentage points from the previous month, although that decline was less than anticipated by forecasters, adding to concerns about inflation.
Tuesday’s news signals more pain to come for households. The producer price index gauges the wholesale prices of goods, which are eventually passed down to consumers.
“Price pressures remained high, with final demand goods up sharply for a fourth consecutive month, while final demand services held steady,” said economists with Oxford Economics.
The news came right after a report for the month of April found that consumer prices increased by 8.3% — near the fastest annual rate in four decades. The high rate of inflation has damaged President Joe Biden politically and undercut support for his spending proposals.
In order to drive down inflation, the Federal Reserve has begun hiking interest rates. The central bank announced in March that it would raise its interest rate target by a quarter of a percentage point in an effort to bring down the higher prices.
This month, the Fed announced that it would increase its interest rate target by half a percentage point. The Fed typically increases rates incrementally by just a quarter of a percentage point, so the more aggressive tack is akin to two rate hikes at once and shows that the central bank is increasingly worried about growing prices.
Republicans have been seizing on both the Fed for its perceived sluggishness in acting and on the Biden administration for trillions of dollars in spending during President Joe Biden’s first year in office.
There are also fears that the Fed’s actions could cause the economy to crater into a recession, a prospect that would damage Democrats going into this year’s midterm elections.