US producer prices climbed last month at the fastest pace since November 2022, fuelled by a surge in energy prices after the start of the Iran war.
The Labor Department reported on Thursday that its producer price index — which captures inflation before it reaches consumers — jumped 6.5 per cent from May 2025. It rose 1.1 per cent from April, as it did the previous month. Wholesale gasolene prices surged by more than 23 per cent from April to May, and nearly 70 per cent from a year earlier.
Inflationary pressures, intensified by the energy shock caused by the Iran war, are frustrating Americans five months before midterm elections that will determine whether President Donald Trump’s Republicans keep full control of Congress.
Gasolene prices have been falling in recent days, but the cost of a gallon of regular gasolene has been above US$4 since March, according to motor club AAA. And the US driving season, which pushes prices higher each year, has just begun.
Excluding volatile food and energy prices, so-called core wholesale prices rose 0.4 per cent from April and 4.9 per cent from May 2025.
The wholesale inflation numbers came out a day after the Labor Department reported that consumer prices rose 4.2 per cent in May from a year earlier, the most in three years. Gasolene prices were up nearly 41 per cent from May 2025. Airfares were up almost 27 per cent.
Inflation is running well ahead of the Federal Reserve’s 2 per cent target. The central bank is expected to leave its benchmark interest rate unchanged at its meeting next week. But financial markets expect the Fed could raise rates by the end of the year in an effort to curb price increases.
Wholesale prices can offer an early look at where consumer inflation might be headed. Economists also watch it because some of its components, notably healthcare and financial services, flow into the Fed’s preferred inflation gauge — the personal consumption expenditures (PCE) index.
Stephen Brown, chief North America economist at Capital Economics, wrote that the producer prices “that feed into the PCE price calculation rose by much more than we expected … .It supports our view that the Fed will hike interest rates towards the end of the year.”
After the United States and Israel attacked Iran on February 28, Iran shut the Strait of Hormuz, causing the biggest disruption in oil supplies in history. Energy prices rocketed. S&P Global Energy warned on Thursday that US crude oil inventories are drying up as the summer driving season approaches.
“The bottom line is that US inventory levels remain above estimated minimum operating thresholds,” said S&P Global Energy’s Aaron Brady. “However, with continued disruption to Middle East flows, draws are likely to extend into the third quarter, even in the event of a near-term diplomatic resolution.” More big, sustained drops in inventories “would likely signal entry into a ‘danger zone’ for the US refining system.”
-AP
