U.S. producer prices rose 1.1% month-on-month in May, exceeding the market estimate of 0.7% for the second consecutive month and confirming that the energy shock from the Iran war continues to push wholesale inflation well above pre-conflict levels.

Key Highlights

  • Beat vs 0.7% forecast: Market estimates called for a 0.7% monthly gain; the actual reading came in at 1.1%, maintaining the pace of April's downwardly revised figure.
  • April revised down: The previously reported 1.4% monthly surge for April was revised down to 1.1%, narrowing the sequential comparison but still leaving two consecutive months of above-forecast gains.
  • Annual rate at 6.5%: The year-on-year PPI rate accelerated to 6.5% in May from 5.7% in April, the largest annual gain since November 2022, and above the market estimate of 6.4%.
  • Energy the primary driver: A 10.7% jump in energy prices, led by a 23.4% surge in gasoline, accounted for nearly 80% of the monthly increase in final demand goods.

U.S. producer price data released Thursday delivered a second consecutive above-forecast monthly reading, reinforcing concerns about persistent wholesale inflation at a time when the Federal Reserve faces increasing pressure to tighten monetary policy.

The Producer Price Index for final demand rose 1.1% on a monthly basis in May, exceeding the market consensus of 0.7%. Notably, April's previously reported monthly gain of 1.4% was revised down to 1.1%, narrowing the sequential comparison between the two months. Despite the revision, the back-to-back prints of 1.1% both exceeded market expectations, confirming an entrenched pattern of upside surprises in wholesale price data.

On an annual basis, the PPI rose 6.5% in May, above both April's 5.7% reading and the market estimate of 6.4%, reaching the highest level since November 2022. Energy prices were the dominant factor in the monthly increase, rising 10.7% for the month. Gasoline alone surged 23.4%, accounting for more than half of the goods price advance. Goods prices overall rose 2.8%, the largest single-month advance since the data series began in December 2009.

Services prices rose 0.3% on the month, decelerating sharply from 0.7% in April, as wholesale and retail trade service margins declined. Transportation and warehousing services rose 2.6%, and portfolio management costs increased 4.8%.

Core PPI, excluding food and energy, rose 0.4% in May, below both the 0.5% market estimate and April's downwardly revised 0.7%. On an annual basis, core PPI held steady at 4.9%, below the 5.4% consensus. However, the broader measure excluding food, energy, and trade services rose 0.8%, its largest monthly gain since March 2022, and is now up 5.1% year-on-year.

The May PPI release followed Wednesday's consumer price index data showing headline inflation above 4% for the first time in three years. Together, the two reports have firmed market expectations for at least one Federal Reserve rate increase before the end of 2026, with the CME FedWatch tool showing markets pricing approximately a 70% probability of a hike by year-end.