US wholesale prices surge 6.5% in May, biggest rise in 3.5 years

US producer prices posted their sharpest annual increase in three and a half years in May, as a prolonged blockade of the Strait of Hormuz amid the US-Iran war continued to rattle energy markets.

The Bureau of Labor Statistics said Saturday that the producer price index rose 6.5 percent in May from a year earlier.

That was the highest annual gain since November 2022, when the index climbed 7.4 percent.

On a monthly basis, prices rose 1.1 percent, matching the revised April figure and far exceeding the 0.7 percent gain forecast by experts polled by Dow Jones.

The core PPI — which strips out volatile energy, food and trade prices — rose 0.8 percent from the previous month and 5.1 percent from a year ago.

A separate measure that excludes only energy and food but retains trade prices rose 0.4 percent month-on-month and 4.9 percent year-on-year.

Producer prices, also known as wholesale prices, are widely regarded as a leading indicator of consumer prices because changes in production costs typically feed through to retail prices with a lag.

The Labor Department said final demand goods prices jumped 2.8 percent from the previous month, the highest monthly increase since the government began tracking the data in December 2009.

Energy prices, up 10.7 percent month-on-month, accounted for 80 percent of the rise in final demand goods prices. Gasoline prices alone surged 23.4 percent from the prior month, contributing more than half of the overall increase in final demand goods prices.

Final demand services prices rose a more modest 0.3 percent month-on-month. A 1.1 percent decline in the trade services index — which measures margin changes for wholesalers and retailers — offset a 2.6 percent rise in transportation and warehousing prices.

The Labor Department said a 4.8 percent monthly increase in portfolio management services prices accounted for more than 40 percent of the overall rise in final demand services prices.

Wall Street analysts had expected May producer prices to climb sharply, given the surge in oil prices and supply chain disruptions stemming from the US-Iran war, but the headline index's increase came in well above even those elevated forecasts.

The data follow Wednesday's report showing that the consumer price index rose 4.2 percent year-on-year in May, its largest annual gain in three years and one month. With both consumer and producer prices rising at record or near-record rates, concerns about accelerating inflation in the United States are deepening.

Markets widely expect the Federal Reserve, now led by new Chair Kevin Warsh, to hold off on the interest rate cuts President Donald Trump has been pushing for, and instead keep rates on hold or raise them before the year is out.

According to the CME Group's FedWatch tool, interest rate futures markets priced in roughly a 30 percent probability that the Fed will hold its benchmark interest rate steady through December, and about a 69 percent chance it will raise rates at least once this year.