Wholesale prices climbed far beyond expectations in May, with a dramatic spike in energy costs driving pipeline inflation to its highest level in years.
The producer price index rose a seasonally adjusted 1.1% for the month, matching April’s increase but exceeding the 0.7% gain economists surveyed by Dow Jones had forecast.
On a 12-month basis, wholesale inflation reached 6.5%, the highest annual rate recorded since November 2022, according to data from the Bureau of Labor Statistics.
Excluding food and energy, core PPI rose 0.4% in May, coming in slightly below the consensus estimate of 0.5%, suggesting that surging fuel costs are driving the bulk of inflationary pressure.
Stripping out food, energy, and trade services, PPI accelerated 0.8%, marking the biggest one-month move in that category since March 2022.
On a 12-month basis, the core measure excluding trade services rose 5.1%, the highest reading since October 2022, underscoring the breadth of inflationary pressure building in the pipeline.
Nearly 80% of the overall PPI acceleration came from a 2.8% surge in final demand goods prices, the biggest increase ever recorded in a data series going back to December 2009.
Energy was the primary culprit, jumping 10.7% and accounting for roughly 80% of the goods price surge, with gasoline prices at the wholesale level soaring 23.4%.
On the services side, portfolio management fees added to the monthly increase, rising 4.8% during what was a strong May for equity markets.
The wholesale inflation report arrived a day after the BLS reported that headline consumer price inflation surged to 4.2% in May, also boosted largely by the energy price shock linked to the Iran war.
Monthly readings on the consumer side showed a less severe shock, however, with core prices rising just 0.2%, putting the 12-month core reading at 2.9%.
The persistent inflation picture is widely expected to keep the Federal Reserve on the sidelines, with the Federal Open Market Committee set to release its next interest rate decision Wednesday.
Market pricing currently reflects a near 100% probability that the Fed will hold rates steady at its upcoming meeting, offering no relief for borrowers hoping for a cut.
Traders are also pricing in no chance of a rate reduction through the remainder of the year, with better than a 60% probability that the next move will actually be a hike, likely arriving in December.
Earlier Thursday, the European Central Bank voted to raise benchmark rates by a quarter percentage point in a move aimed at curbing the broader global inflation surge driven by energy market disruptions.
