U.S. producer prices accelerate as energy costs lift May inflation

Traders Union
All News
Financial News
U.S. producer prices rise in May

Highlights

The Producer Price Index rises 1.1% in May, exceeding the 0.7% forecast, with a 6.5% year-over-year increase, the largest since November 2022.
Goods prices surge 2.8% in May, driven by energy products amid supply chain constraints and U.S.-Israeli war with Iran, while services prices increase 0.3%.
Financial markets price in a possible Federal Reserve rate hike as May consumer inflation exceeds 4%, though the Fed is expected to maintain its 3.50%-3.75% range next week.

May price gains exceed forecasts

As reported by Reuters, the Labor Department's Bureau of Labor Statistics said on Thursday that the Producer Price Index for final demand rises 1.1% in May after a downwardly revised 1.1% increase in April.

Economists polled by Reuters had expected a 0.7% gain following a previously reported 1.4% jump in April. In the 12 months through May, the PPI increases 6.5%, the largest rise since November 2022.

A 2.8% increase in goods prices, led mostly by energy products, accounts for nearly 80% of the monthly advance in the index. Prices for services rise 0.3%.

Energy shock shapes Fed outlook

The U.S.-Israeli war with Iran raises prices for energy products including gasoline and diesel. Global supply chains are also under strain because of restricted shipping in the Strait of Hormuz, causing shortages across products such as fertilizers, aluminum and consumer goods.

The government reports on Wednesday that consumer inflation jumps above 4% in May for the first time in three years. The Federal Reserve tracks the Personal Consumption Expenditures price indexes for its 2% inflation target, and economists estimate PCE inflation rises 0.4% in May after the same increase in April.

Financial markets are pricing in a possible rate increase from the Fed as inflation rises and the labor market remains stable. Still, economists say the threshold for tighter policy remains high, while the central bank is expected to keep its benchmark overnight rate in the 3.50%-3.75% range at next week's meeting and drop its easing bias.

In our earlier article, we covered how renewed U.S. strikes on Iranian targets heightened fears of disruptions to energy flows through the Strait of Hormuz, pushing Brent crude above $95 a barrel. We also noted that even without a confirmed full closure, rising shipping and insurance risks can keep oil and LNG markets tight—feeding back into inflation expectations and complicating the Federal Reserve’s policy outlook.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.