US producer prices declined in May, restrained by a drop in the cost of gasoline and underscoring a continued easing in supply-side inflation.

The producer price index for final demand decreased 0.3% from a month earlier, according to data out Wednesday from the Bureau of Labor Statistics. From a year ago, the PPI rose 1.1%, the smallest advance since the end of 2020.

The median forecast in a Bloomberg survey of economists called for a 0.1% drop in the PPI from a month earlier. The S&P 500 opened little changed and Treasury yields fell ahead of the Federal Reserve’s decision on interest rates later on Wednesday.

Goods prices slid by the most in nearly a year. The agency said 60% of that drop was due to the decline in gasoline costs. Services prices inched higher, reflecting higher margins at auto dealers.

Excluding the volatile food and energy components, the so-called core PPI rose 0.2% from April and was up 2.8% from a year ago.

The PPI, which is a measure of wholesale prices, has slowed markedly since the middle of last year amid normalizing supply chains, shifting consumer spending preferences toward services, and a broader cooling in costs of key commodities.

The data come just a day after the May consumer price index showed inflation cooled, bolstering expectations among economists and investors that the Fed will leave interest rates unchanged later today.

Read more: US CPI Report’s Details Suggest Fed Pause Will Become Full Stop

Producer prices excluding food, energy, and trade services — which strips out the most volatile components of the index — were unchanged from the prior month, the weakest print since declining in April 2020.

What Bloomberg Economics Says...

“The May PPI print points to significant goods disinflation. Taken together, May’s CPI and PPI data signal a softening in PCE inflation — which the Fed watches more closely — supporting the case for a ‘hawkish skip’ at the June FOMC meeting.”

— Jonathan Church, economist

For the full note, click here

Several categories from the PPI report, notably in health care, are used to calculate the personal consumption expenditures price gauge — the Fed’s preferred inflation measure — that will be released later this month.

Within health care, several categories — including home health and hospice care, hospital care and nursing home care — posted smaller increases in May than a month earlier.

Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, decreased 1.5%, the most this year. Over 40% of the decline was due to a plunge in diesel fuel. Excluding food and energy, these costs were unchanged.

Separate data also point to a further easing in many costs faced by firms. Gauges of input prices produced by the Institute for Supply Management weakened in May, while a New York Fed measure of pressures in global supply chains slid to a record low.

--With assistance from Augusta Saraiva and Kristy Scheuble.

(Adds Bloomberg Economics comment)