Prices charged by US producers accelerated in May, according to the US Bureau of Labor Statistics, as the conflict in the Middle East continues to push up energy and transportation costs. Yesterday’s report came one day after fresh data on US consumer prices, and together the two reports suggest companies are starting to pass higher costs on to consumers.

• The US producer price index (PPI) rose 6.5% year over year in May, the largest annual increase since November 2022, and gained 1.1% from April, which was above forecasts of 0.8%. Core producer prices, which exclude food and energy, rose 4.9% annually.
• Energy prices were again the main driver, rising 10.7% in May. Transportation and warehousing costs gained 2.6%, while food prices rose 0.6%, the most in three months.
• The cost of goods rose sizably to 2.8% in May, from 1.9% in April, driven largely by a 23.4% rise in gasoline. Fuel, plastics, industrial chemicals and natural gas liquids also increased.
• A day earlier, the US consumer price index (CPI) rose 4.2% year over year in May, its highest reading since April 2023 and a third straight acceleration. Energy costs climbed 23.5% annually. Core CPI rose a more modest 2.9% year over year and 0.2% over the month.
• Meanwhile, the European Central Bank (ECB) raised its deposit rate by 25 basis points to 2.25% yesterday, its first rate increase since 2023. The ECB now sees eurozone inflation averaging 3.0% in 2026.

Inflationary pressures are building on both sides of the Atlantic as the conflict in the Middle East keeps energy prices higher. The ECB has become the first major central bank to respond with higher interest rates, and the latest PPI data may cause the US Federal Reserve Board (Fed) to consider raising its policy interest rate as well to tame inflation. The Fed makes its next interest rate announcement on June 17.

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