US producer prices rise 1.1% in May as energy costs jump

US producer prices increased 1.1% in May, more than the 0.7% rise economists surveyed by Dow Jones had expected, the Bureau of Labor Statistics reported Thursday. The gain lifted the 12-month wholesale inflation rate to 6.5%, its highest level since November 2022, adding pressure to the inflation data watched by policymakers and markets.

The producer price index measures prices received by domestic producers for final demand goods and services. Investors follow it because changes in business input and selling prices can later influence consumer prices, corporate margins and monetary policy expectations.

The May advance matched April’s monthly increase, according to the BLS. Energy accounted for a large share of the move, while some measures that strip out volatile categories showed a less severe increase than the headline figure.

Energy drives the headline increase

Final demand goods prices rose 2.8% in May, the largest increase in the data series that began in December 2009, the BLS said. CNBC reported that goods accounted for nearly 80% of the overall acceleration in the producer price index.

Within goods, energy prices rose 10.7%, according to the BLS. Gasoline prices at the wholesale level increased 23.4%, making fuel a central contributor to the month’s producer-price inflation.

Food and energy can move sharply from month to month, so economists also track measures that exclude them. Core PPI, which removes food and energy, rose 0.4% in May, below the 0.5% consensus estimate in the Dow Jones survey.

A narrower measure that also excludes trade services increased 0.8%, the strongest one-month rise since March 2022, the BLS said. Over 12 months, that index was up 5.1%, the largest annual increase since October 2022.

Services also contribute

The BLS data showed gains outside energy as well. On the services side, portfolio management fees rose 4.8% in May. CNBC tied that increase to a strong month for the stock market.

The producer-price report followed a separate BLS release showing consumer price inflation accelerated to 4.2% in May. CNBC reported that consumer inflation was also lifted largely by higher energy prices linked to the Iran war. The same report showed core consumer prices rose 0.2% on the month and 2.9% from a year earlier.

The combination of firm headline inflation and energy-driven price pressure comes before the Federal Reserve’s next interest-rate decision, due Wednesday. Market pricing cited by CNBC indicated a near 100% probability that the Federal Open Market Committee would leave rates unchanged.

Beyond the June meeting, traders cited by CNBC were pricing in no probability of a rate cut through the end of the year and a greater than 60% probability that the Fed’s next move would be an increase, likely in December.

The European Central Bank raised benchmark rates by a quarter percentage point earlier Thursday, CNBC reported, saying the move was intended to address the inflation surge. CNBC also reported that few, if any, Federal Reserve officials had signaled support for a comparable tightening step, with officials instead favoring patience while assessing whether the energy supply shock fades and inflation moves back toward the central bank’s 2% target.

This story draws on original reporting from CNBC.