Wholesale prices unexpectedly fell 0.2% in May

A measure of wholesale prices unexpectedly decreased in May, adding another piece of evidence that inflation is pulling back.

The producer price index, a gauge of prices that producers get for their goods and services in the open market, declined 0.2% for the month, the Labor Department's Bureau of Labor Statistics reported Thursday. That reversed a 0.5% increase in April and compared with the Dow Jones estimate for a 0.1% rise.

Excluding food, energy and trade services, the PPI was unchanged, compared with expectations for a 0.3% increase.

On an annual basis, the all-items PPI rose 2.2%.

Stock market futures saw some modest gains following the report while Treasury yields moved lower. As morning trade progressed, the Dow Jones Industrial Average lost about 260 points, though the S&P 500 and Nasdaq were little changed.

Markets have been hoping that easing inflation data will push the Federal Reserve to reduce interest rates later this year. Though the Fed in its decision released Wednesday rolled back its outlook for cuts this year to one 0.25 percentage point reduction, markets remain hopeful for two.

"The May CPI and PPI data are favorable for our view that the Fed will be reducing its policy rate later this year," Bank of America economist Stephen Juneau said in a note. "We see recent inflation data as greatly reducing the likelihood that the Fed has to raise rates and view labor market data as indicating that the probability of fast rate cuts is also low."

The release comes a day after the BLS reported that the consumer price index, a widely watched gauge of inflation that measures what consumers actually pay for goods and services, was unchanged on the month.

From the wholesale perspective, the PPI was held back by a 0.8%