Producer Inflation Rises Less Than Forecasts In May, Jobless Claims Signal Labor Market Cracks (UPDATED)

Editor’s Note: This article has been updated with additional content.

Producer prices snapped back in May after an April decline, but the rebound fell short of sparking inflation concerns, suggesting tariffs and supply frictions have yet to bleed broadly into the economy.

The Producer Price Index rose 2.6% on a year-over-year basis, up from April's upwardly revised 2.5%, according to Thursday's report from the Bureau of Labor Statistics.

On a monthly basis, the PPI advanced 0.1%, reversing April's upwardly revised 0.2% decline, and below the 0.2% expected.

Core PPI, which strips out food and energy prices and is a key indicator of underlying inflation pressures, eased to 3% annually from April's 3.2%. This marks the lowest level since August 2024. On a monthly basis, core PPI inched 0.1%, rebounding from a 0.2% decline in the prior month, below than expected 0.3%.

Thursday's producer data arrived one day after a softer-than-expected consumer inflation reading. The Consumer Price Index climbed 2.4% year-over-year in May, up slightly from April's 2.3%, but below the anticipated 2.5% increase.

In a separate release Thursday, the Department of Labor reported that initial jobless claims rose to 248,000 for the week ending June 7, above forecasts for 240,000. Continuing claims surged to 1.956 million, the highest level since November 2021 and above consensus projections of 1.91 million.

The increase in unemployment filings is further evidence of a softening labor market, potentially giving the Federal Reserve additional room to resume the pace of interest rate cuts.

Fed futures currently price in a near-certainty of a first rate cut by October.

Following the PPI and jobless claims data, traders are assigned roughly 40 basis points of total easing by year-end, implying at least one full 25-basis-point cut and a high probability of a second in December.

Market Reactions: Treasury Yields Fall, Dollar Hits 2-Year Lows

Both the U.S. dollar and Treasury yields dropped sharply following the cooler inflation readings and signs of labor market weakening.

A trade-weighted measure of the dollar, broadly tracked by the Invesco DB USD Index Bullish Fund ETF UUP, slid to 97.70—its lowest level since March 2022.

Bond markets reacted with a broad rally. The yield on the 10-year Treasury fell 7 basis points to 4.35%, while the 30-year yield also declined 7 basis points to 4.85%. The more rate-sensitive 2-year yield dropped to 3.87%, approaching its lowest point since early May, as traders ramped up bets on Federal Reserve rate cuts.

The iShares 20+ Year Treasury Bond ETF TLT was 1.1% higher in the premarket trading.

Meanwhile, U.S. equity futures pared overnight losses, supported by growing expectations for looser monetary policy and more favorable conditions for risk assets.

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