US producer prices surge 6.5% in May as energy costs spike

The Labor Department reported on Thursday that the U.S. producer price index (PPI) jumped 6.5% in May from a year earlier and rose 1.1% from April, the strongest monthly increase since November 2022. Wholesale gasoline prices rose more than 23% from April to May and were up nearly 70% compared with a year earlier, pushing overall wholesale inflation higher.

Core wholesale prices, which exclude food and energy, increased 0.4% from April and 4.9% from a year earlier. The rise follows a report that consumer prices rose 4.2% in May from a year earlier, the largest annual gain in three years, with gasoline up about 41% and airfares up almost 27%.

"The bottom line is that U.S. inventory levels remain above estimated minimum operating thresholds," said Aaron Brady of S&P Global Energy. "However, with continued disruption to Middle East flows, draws are likely to extend into the third quarter, even in the event of a near-term diplomatic resolution."

"Producer prices that feed into the PCE price calculation rose by much more than we expected ... It supports our view that the Fed will hike interest rates toward the end of the year," wrote Stephen Brown, chief North America economist at Capital Economics.

The surge follows Iran’s closure of the Strait of Hormuz after a U.S.-Israel attack on February 28, which sharply reduced oil supplies and lifted crude prices. Analysts note that the U.S. driving season, which typically pushes gasoline prices higher, has just begun. Inflation remains well above the Federal Reserve’s 2% target, and while the Fed is expected to keep its benchmark rate unchanged at its upcoming meeting, markets anticipate possible rate hikes later in the year to curb price pressures.