Wholesale prices rose by 1.1% in May, according to a report from the Bureau of Labor Statistics released on Thursday. This increase was higher than the 0.7% that economists surveyed by Dow Jones had anticipated. The 12-month wholesale inflation rate now stands at 6.5%, marking the highest annual rate since November 2022. The monthly gain in wholesale prices matched the increase seen in April.
Excluding food and energy, the core Producer Price Index (PPI) rose by 0.4%, slightly below the expected increase of 0.5%. When food, energy, and trade services are excluded, the PPI increased by 0.8%, the largest monthly rise since March 2022. On a year-over-year basis, the core PPI excluding trade services increased by 5.1%, the highest since October 2022.
The majority of the PPI acceleration, approximately 80%, was attributed to a 2.8% rise in final demand goods prices, the largest increase recorded since December 2009. A significant portion of this increase, around 80%, was due to a 10.7% rise in energy prices, with gasoline prices increasing by 23.4% at the wholesale level.
On the services side, portfolio management fees rose by 4.8% during a strong May for the stock market. The report follows a previous announcement from the BLS indicating that headline consumer price inflation surged to 4.2% in May, primarily driven by rising energy prices linked to the Iran war. However, core prices rose by only 0.2% for the month, resulting in a 12-month reading of 2.9%.
The current inflation situation is expected to influence the Federal Reserve's decisions, with the Federal Open Market Committee set to announce its interest rate decision on Wednesday. Market expectations indicate a near 100% probability that rates will remain unchanged, with no anticipated cuts for the remainder of the year and a greater than 60% chance of a rate hike, likely in December.
Earlier on the same day, the European Central Bank raised benchmark rates by a quarter percentage point to combat inflation. In contrast, few Federal Reserve officials have shown interest in similar tightening measures, preferring a cautious approach to assess whether the energy supply shock subsides and inflation returns to the central bank's 2% target.