Wholesale inflation accelerated sharply in May, reaching the highest annual increase since late 2022 as energy prices jumped amid ongoing tensions related to the Iran conflict. The Producer Price Index (PPI) rose 6.5% over the past year, signaling persistent inflationary pressures that are influencing the broader economy.
On a monthly basis, wholesale prices climbed 1.1%, matching April’s substantial gain and exceeding analyst expectations. This increase was largely fueled by a significant surge in energy prices, which accounted for the majority of the rise. Gasoline prices alone jumped over 23%, while diesel, jet fuel, and industrial chemicals also saw considerable hikes. These elevated energy costs trickled down to affect a wide range of goods and services, from food and clothing to air travel.
Core inflation, which strips out food and energy prices, rose more modestly by 0.4% for the month—slightly below forecasts—indicating that energy remains the key driver behind the wholesale inflation jump. Excluding food, energy, and trade services, the PPI still recorded its largest monthly gain since March 2022, up 0.8%, reflecting broader underlying inflation.
Energy prices surged 10.7% in May alone, representing nearly 80% of the increase in final demand goods prices. The Strait of Hormuz remains largely obstructed, sustaining higher oil prices and contributing to sustained inflationary pressures. Portfolio management fees also rose nearly 5% in May, influenced by record highs in the stock market toward the end of the month.
These inflation figures are likely to weigh on Federal Reserve policy decisions. While most market participants expect the Fed to hold interest rates steady at its upcoming meeting, the probability of a rate hike at the following session has recently risen, reflecting concerns over persistent inflation risks.
The Consumer Price Index (CPI) data released the day before also indicated that inflation surpassed 4% in May—the highest level in three years—reinforcing the impact of rising energy costs on consumer prices.