U.S. businesses faced the sharpest jump in wholesale costs in over three years last month as the conflict in Iran pushed energy prices higher. The Producer Price Index climbed 1.1% in May, pushing the 12-month wholesale inflation rate to 6.5%.
The closure of the Strait of Hormuz in late February choked global oil supplies and drove the bulk of the inflationary pressure. Energy costs accounted for nearly 80% of the overall increase in wholesale goods prices. Across the month, wholesale gasoline prices surged 23.4%. Global supply chains also faced strain from restricted shipping routes, leading to shortages of industrial materials like fertilizers and aluminum.
Price increases extended beyond energy markets. Stripping out volatile food, energy, and trade services, the core wholesale index rose 0.8% in May, marking the largest one-month move since March 2022. The cost of transporting freight by road increased 3.4%, airline fares rose 2.5%, and wholesale portfolio management fees climbed 4.8% during a strong month for the stock market.
Higher wholesale costs are arriving on retail shelves and at the pump, where the average cost of a gallon of regular gasoline has remained above $4 since March. The producer data follows a separate government report showing consumer inflation reached 4.2% in May. Financial markets are now pricing in a near 100% probability that the Federal Reserve will leave its benchmark interest rate unchanged at its upcoming policy meeting.
S&P Global Energy estimates that continued supply disruptions from the Middle East will force U.S. crude oil inventories lower through the third quarter, moving domestic refining systems closer to minimum operating thresholds.
