A key inflation gauge surprised with wholesale prices dropping 0.2%, a day after the latest Consumer Price Index showed retail prices were trending lower.
The Bureau of Labor Statistics reported that the Producer Price Index, which measures the prices producers get for goods and services on the open market, fell 0.2% in May.
Analysts had expected PPI prices to rise 0.1%. PPI rose 0.5% in April.
In the 12 months through May, the producer price index rose 2.2% following a 2.3% increase in April.
Excluding food, energy and trade services, the PPI was unchanged. Analysts had expected it to rise 0.3%.
S&P 500 futures and Nasdaq futures surged in premarket trading following the release of the Producer Price Index (PPI) report.
The positive inflation data has raised hopes that the U.S. economy is headed for a “soft landing” — one that keeps inflation under control while avoiding recession and mass unemployment.
Federal Reserve Chairman Jerome Powell, speaking at a news conference after the central bank’s policy meeting, noted that inflation has fallen without causing a major shock to the economy and said there is no reason to think that trend won’t continue.
The Federal Reserve kept interest rates unchanged on Wednesday.
The central bank on Wednesday kept its benchmark overnight interest rate unchanged at its current range of 5.25% to 5.50%, where it has been since July last year.
The Federal Reserve has raised interest rates by 525 basis points since March 2022 in an effort to tame inflation.
Powell also reiterated that policymakers need to see more evidence that inflation is cooling before cutting rates.
Meanwhile, Fed officials scaled back their projections for aggressive rate cuts this year to one 25-basis-point cut from three, a change that investors had largely expected.
The soft landing theory has been key for markets in recent months.
Investors had been pricing in rate cuts of 150 basis points or more since the beginning of the year, but quickly reversed those bets when it became clear that the economy was too strong for the Fed to ease monetary policy without risking a resurgence of inflation.
With post wire
