Wholesale inflation accelerated in May as energy prices jumped
The producer price index rose 1.1% in May, above forecasts, with fuel costs driving much of the pressure seen before prices reach consumers.
By Priya Nair · Economy Reporter
· 3 min read
Wholesale inflation ran hotter than expected in May, a sign that businesses faced higher input costs that can eventually show up in store prices. For retail investors, the report adds pressure to the interest-rate story: sticky inflation gives the Federal Reserve less room to cut rates.
The Bureau of Labor Statistics said Thursday that the producer price index, or PPI, rose a seasonally adjusted 1.1% in May from April. PPI measures prices received by producers for goods and services, often making it an early read on inflation before it reaches consumers.
Economists surveyed by Dow Jones had expected a 0.7% monthly increase. Over the past 12 months, wholesale prices rose 6.5%, the fastest annual pace since November 2022, according to the BLS. The monthly increase matched April’s gain.
Energy was the main driver. The BLS said final demand goods prices rose 2.8% in May, the largest increase in that data series going back to December 2009. Nearly 80% of the overall PPI acceleration came from goods, and 80% of the goods increase came from a 10.7% rise in energy prices, according to the agency.
Gasoline prices at the wholesale level rose 23.4% in May, the BLS said. That matters because wholesale fuel costs can work their way through the economy, affecting transportation, manufacturing and eventually some consumer prices.
The picture was less severe after removing the most volatile categories. Core PPI, which excludes food and energy, rose 0.4% in May. That was below the 0.5% increase expected by economists surveyed by Dow Jones.
A narrower inflation gauge that strips out food, energy and trade services rose 0.8% for the month, the largest one-month increase since March 2022, according to the BLS. On a 12-month basis, that measure rose 5.1%, the strongest reading since October 2022.
Services also contributed to the increase. The BLS said portfolio management fees rose 4.8% in May, a month when the stock market performed strongly. Portfolio management fees are charges tied to overseeing investment accounts and funds.
The wholesale report followed Wednesday’s consumer price index release from the BLS. Consumer inflation rose to 4.2% in May, with energy prices playing a major role amid the Iran war, CNBC reported. Core consumer prices rose 0.2% for the month, bringing the 12-month core reading to 2.9%.
The Federal Reserve’s next interest-rate decision is due Wednesday from the Federal Open Market Committee, the central bank group that sets short-term rate policy. Market pricing cited by CNBC showed a near 100% probability that the Fed will leave rates unchanged.
Traders were also pricing in no chance of a rate cut through the rest of the year and a better than 60% probability that the Fed’s next move will be a hike, likely in December, CNBC reported. Higher rates can weigh on stocks by making borrowing more expensive and increasing the appeal of cash and bonds.
The European Central Bank moved earlier Thursday, raising benchmark rates by a quarter percentage point to counter inflation, according to CNBC. Fed officials, by contrast, have generally backed a more patient approach, watching whether the energy shock fades and inflation moves closer to the central bank’s 2% target.
This story draws on original reporting from CNBC.
