U.S. May PPI Rises More Than Expected as Energy Drives Producer Inflation Pressures

TradingKey - Data released by the U.S. Bureau of Labor Statistics on Thursday showed that the U.S. Producer Price Index (PPI) rose 1.1% month-over-month in May, matching the increase in April and exceeding the market expectation of 0.7%. On an unadjusted basis, the final demand PPI rose 6.5% year-over-year, the largest 12-month advance since November 2022, indicating that wholesale inflation pressures in the U.S. continue to heat up.

Looking at the breakdown, the PPI increase in May was primarily driven by goods prices. Data showed that final demand goods prices rose 2.8% month-over-month, the largest single-month increase since the series began in December 2009. Energy prices were the main driver, with final demand energy prices surging 10.7%; gasoline prices alone jumped 23.4%, contributing more than half of the increase in final demand goods prices. Prices for diesel fuel, jet fuel, plastic resins and materials, industrial chemicals, and natural gas liquids also rose.

In contrast, the increase in services prices was relatively moderate. Final demand services prices rose 0.3% month-over-month in May, lower than the 0.7% recorded in April. Among them, transportation and warehousing services prices rose 2.6%, while services prices excluding trade, transportation, and warehousing rose 0.7%. However, a 1.1% decline in margins for final demand trade services partially offset the overall increase in services prices.

Core indicators also pointed to rising inflation stickiness. The final demand PPI excluding food, energy, and trade services rose 0.8% month-over-month, the largest increase since March 2022; it rose 5.1% year-over-year, also the largest 12-month advance since October 2022.

Overall, following the rise in the May CPI to 4.2% year-over-year, the PPI once again indicates that energy shocks are being transmitted to the production side. This data may further erode market bets on Federal Reserve rate cuts this year and bolster expectations for "higher for longer" interest rates. For asset prices, the U.S. dollar and Treasury yields remain supported, while U.S. equities—particularly high-valuation tech stocks—may continue to face valuation pressure.