U.S. businesses faced the sharpest rise in producer prices in more than three years in May, as higher fuel costs tied to the Iran war rippled through the economy and added to broader inflation pressures.
The producer price index rose 1.1% from April to May and climbed 6.5% from a year earlier, the largest annual increase since November 2022, according to data released Thursday by the Bureau of Labor Statistics. Core producer prices, which exclude food and energy, increased 4.9% from a year ago.
The figures followed Wednesday’s consumer inflation report, which showed overall prices rising at the fastest pace since early 2023. Together, the reports pointed to mounting price pressures across both businesses and consumers.
According to NBC News report on producer prices and inflation, energy costs accounted for roughly 80% of the monthly increase in the producer price index. Oil prices have risen sharply since Iran war, contributing to higher gasoline and transportation costs.
The Bureau of Labor Statistics said the annual increase in producer prices was the biggest 12-month gain since late 2022. The report also showed a notable rise in portfolio management fees, which increased 4.8% in May.
President Donald Trump addressed inflation during remarks at the White House on Wednesday, saying, “I love the inflation,” before adding that prices would fall once the war ended. He later told the New York Post that his comments had been taken out of context and argued that inflation figures were lower than expected. The latest consumer and producer inflation reports, however, both came in above economists’ expectations.
Financial markets reacted by reassessing the path for Federal Reserve policy. Traders in futures markets increased expectations that the Fed will keep interest rates elevated for longer, and some investors began pricing in the possibility of another rate increase later this year. Stephen Juneau, a U.S. economist at Bank of America, told NBC News that the Fed would be “hard-pressed to look through the firming in inflation.”
The surge in energy prices has become a central driver of inflation globally, not just in the United States. The European Central Bank raised interest rates earlier Thursday, and ECB President Christine Lagarde said inflation in the eurozone was not expected to return to the bank’s 2% target until late 2027, according to Reuters report on ECB rate hike and inflation outlook.
Energy markets have remained volatile since the Iran conflict escalated. Oil prices have climbed roughly 60% this year, while U.S. gasoline prices have risen sharply in recent weeks, according to CNBC report on oil and gasoline prices during the Iran conflict. Higher fuel costs typically feed into transportation, manufacturing and shipping expenses, increasing costs for businesses across multiple industries.
Economists have long viewed energy inflation as a key risk because sustained increases in oil and gasoline prices can spread beyond fuel into broader goods and services costs. The Federal Reserve often distinguishes between temporary energy shocks and broader inflation trends, but persistent increases in business costs can complicate that assessment.
The report underscored how quickly geopolitical tensions can affect domestic prices. While consumers directly feel higher gasoline prices at the pump, businesses absorb rising costs through transportation, logistics, manufacturing inputs and energy-intensive operations.
The inflation data also arrived as Wall Street stocks continued climbing to record levels, driven partly by strong corporate earnings and enthusiasm around technology and artificial intelligence investments. But the hotter-than-expected inflation readings introduced fresh uncertainty about borrowing costs and the broader economic outlook.
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