Wholesale inflation shot up in May to its highest level since November 2022 as higher energy costs amid the Iran war weighed on the economy – likely keeping the Fed from slashing interest rates anytime soon.
The Producer Price Index rose 6.5% in May over the past 12 months, the Bureau of Labor Statistics said Thursday – the fastest rate since hitting 7.4% in 2022 amid higher energy costs and supply chain snags.
Over the month, the PPI soared 1.1%, matching its April increase and surpassing expectations of a 0.7% gain.
“Thursday’s elevated PPI print is yet another data point that could push the Federal Reserve to hike interest rates, as it’s clear that all of the main measures of inflation are flashing red,” Clark Bellin, president and chief investment officer of Bellwether Wealth, said in a note Thursday.
“We acknowledge that this inflationary spike is likely temporary and will subside once the Iran war ends, but there is increasing concern that the Iran conflict will persist for some time, which means higher oil prices and higher inflation.”
The vast majority of traders anticipate the Fed will keep interest rates steady at its meeting next week – but odds of a rate hike at the subsequent meeting in July jumped above 12% Thursday, according to CME FedWatch, which tracks 30-Day Fed Funds futures prices.
Excluding food and energy, the core PPI gained just 0.4% over the month, indicating that much of the higher inflation rate is being driven by energy costs as the Strait of Hormuz remains largely blockaded.
The figure came in below expectations of a 0.5% rise.
Without food, energy and trade services, the PPI rose 0.8% – its largest monthly gain since March 2022. On a yearly basis, the figure gained 5.1% at its fastest rate since October 2022.
Eighty percent of the rise in final demand goods prices came from a 10.7% surge in energy prices in May alone, according to the BLS.
The index for gasoline soared 23.4%, and prices for diesel, jet fuel, plastic resins and materials, industrial chemicals and natural gas liquids also jumped – as higher energy costs seep into everything from food and apparel to airfares.
A major driver on the services side of inflation were portfolio management fees, which rose 4.8% in May as the stock market reached fresh record highs at the end of the month.
The Consumer Price Index, which was released by the BLS on Wednesday, showed that inflation shot past 4% in May for the first time in three years, also largely driven by higher energy costs.
President Trump faced backlash after he defended the CPI report on Wednesday, telling reporters in the Oval Office, “I love the inflation.”
Trump told The Post his comments were taken out of context, saying in a phone interview shortly after the remark that he actually loved the fact that inflation wasn’t higher – and predicted that last month’s 4.2% rate will be as high as prices get.
“I love the inflation numbers because of what I’m talking about,” Trump told The Post.
“The numbers are going to be phenomenal because what’s showing is that despite the fact that we’re in a war, the numbers are much lower than anticipated, and when we’re out of that war, the numbers will be at lower numbers than they were even before it started.”
On Thursday morning, the European Central Bank became the first major central bank to hike interest rates – to 2.25% from 2% – in response to surging inflation.