US inflation alarm grows as energy shock sends producer prices to 3.5-year high – Firstpost

US producer prices rose more than expected in May, recording their biggest annual increase in three-and-a-half years as surging energy costs triggered by the prolonged Middle East conflict added fresh inflationary pressure on the world’s largest economy.

The US Producer Price Index (PPI) for final demand increased 1.1 per cent in May after a revised 1.1 per cent rise in April, according to data released by the Labor Department’s Bureau of Labor Statistics. Economists polled by Reuters had expected a smaller 0.7 per cent increase.

On an annual basis, producer prices climbed 6.5 per cent in May, marking the strongest rise since November 2022 and accelerating from 5.7 per cent in April.

The sharp increase was largely driven by goods prices, especially energy products, which accounted for nearly 80 per cent of the monthly rise in PPI. Goods prices jumped 2.8 per cent, while energy prices surged 10.7 per cent. Gasoline prices alone soared 23.4 per cent during the month.

The rise comes as the ongoing US-Israel conflict with Iran continues to disrupt global energy markets. Restrictions on shipping through the Strait of Hormuz have strained supply chains and lifted costs of commodities ranging from fuel and industrial chemicals to fertilizers and consumer goods.

Inflationary pressures also appeared to be spreading beyond energy. Core goods prices, which exclude food and energy, rose 0.8 per cent — the biggest monthly increase since April 2022. Services prices increased 0.3 per cent, led by higher portfolio management fees, freight transportation costs, airline fares, and hotel charges.

The latest data, along with consumer inflation rising above 4 per cent in May for the first time in three years, has reinforced expectations that the Federal Reserve will keep borrowing costs higher for longer. Markets increasingly expect policymakers to maintain the benchmark interest rate in the 3.50 per cent–3.75 per cent range at next week’s meeting.

While some investors are beginning to price in the possibility of a future rate hike, economists believe the Fed may wait to assess whether the energy-driven price shock spreads more broadly across the economy.

Meanwhile, the US labour market remains relatively stable. Initial unemployment claims rose by 4,000 to 229,000 for the week ended June 6, while the unemployment rate held steady at 4.3 per cent for a third consecutive month.