Key facts
- U.S. producer prices increased 1.1% in May, reaching a 6.5% annual gain.
- Energy products accounted for nearly 80% of the monthly PPI increase.
- Wholesale gasoline prices surged 23.4% in May.
- Core goods prices rose 0.8% and services prices climbed 0.3% in May.
- Initial jobless claims increased to 229,000 for the week ended June 6.
U.S. producer prices rose more than anticipated in May, marking the largest annual increase in three and a half years, driven by surging energy costs. The Producer Price Index for final demand advanced 1.1% in May, following a revised 1.1% rise in April. Annually, the PPI climbed 6.5%, the biggest gain since November 2022, compared to 5.7% in April.
Energy products, which saw a 10.7% increase, accounted for nearly 80% of the monthly PPI rise. Wholesale gasoline prices specifically jumped 23.4%. This surge in energy prices is linked to the ongoing Middle East conflict and restrictions in the Strait of Hormuz, which have strained global supply chains.
Excluding volatile energy and food components, core goods prices rose 0.8%, the largest increase since April 2022. Services prices increased by 0.3%. Economists have revised their forecasts for the Federal Reserve's preferred inflation gauge, the PCE price index, upwards, with monthly core PCE inflation projected to rise to 0.4%.
This inflationary pressure, coupled with a resilient labor market indicated by initial jobless claims rising slightly to 229,000, reinforces expectations that the Federal Reserve will maintain its current interest rate policy. Some economists suggest the Fed might even consider a rate hike later in the year, moving away from its easing bias.
President Donald Trump commented on the situation, stating the U.S. would "hit Iran very hard tonight" and take control of its oil and gas infrastructure, potentially further impacting energy prices.