Producer prices were much weaker than expected in May. A 1.4 percent monthly fall came in far steeper than the market consensus calling for a decline of 0.3 percent. The annual rate, at 1.0 percent for the lowest reading since January 2021, has now cooled for eight consecutive months since the August and September peak of 45.8 percent.

As usual, it was energy that did much of the work and prices here were down 3.5 percent versus April. Elsewhere, intermediates fell 1.1 percent on the month while non-durable goods rose 0.1 percent. As a result, the core PPI fell 0.4 percent versus April and was up 3.2 percent year-over-year.

Capital goods and non-durable consumer goods, up 6.5 percent and 10.1 percent year-over-year, respectively, remain as the strongest sources of upward pressure on both the overall and core annual rate.

The May report puts the German ECDI at minus 12 and the ECDI-P at minus 7, both signalling a modest degree of overall economic underperformance versus market expectations.

After April's 0.3 percent rise, the first monthly increase since last September, May's PPI is seen falling 0.3 percent. Year-over-year, the PPI is seen falling to 1.8 from 4.1 to percent.

The Producer Price Index (PPI) measures the price of industrial and commercial goods produced and sold domestically (excluding turnover tax). About 1,250 types of goods are used to calculate the index and prices are reported by a total of 5,000 enterprises under fixed contractual conditions. Changes in the index provide a guide to inflation from the point of view of the product's producer/manufacturer and, in contrast to the consumer price index (CPI), excludes VAT and other deductible taxed associated with turnover.

The PPI measures prices at the producer level before they are passed along to consumers. Since the producer price index measures prices of consumer goods and capital equipment, a portion of the inflation at the producer level gets passed through to the consumer price index (CPI).

Because the index of producer prices measures price changes at an early stage in the economic process, it can serve as an indicator of future inflation trends. The producer price index and its sub-indexes are often used in business contracts for the adjustment of recurring payments. They also are used to deflate other values of economic statistics like the production index. It should be noted that the PPI excludes construction. These price statistics cover both the sales of industrial products to domestic buyers at different stages in the economic process and the sales between industrial enterprises.

The PPI provides a key measure of inflation alongside the consumer price indexes and GDP deflators. The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to manufacturers increase, businesses are faced with either charging higher prices or they taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace.

The bond market rallies when the PPI decreases or posts only small increases, but bond prices fall when the PPI posts larger-than-expected gains. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.