US PPI rises by more than expected; annual producer price rise highest in 3 years

US annual wholesale inflation accelerated to its highest level in more than three years in May, though underlying price pressures remained relatively contained.

Data released Thursday by the Bureau of Labor Statistics showed the Producer Price Index (PPI), which measures prices businesses receive for goods and services, rose 1.1% in May from the previous month.

On an annual basis, producer prices increased 6.5%, marking the fastest pace since November 2022 and highlighting persistent inflationary pressures moving through the economy.

The reading exceeded economists' expectations for a 0.7% monthly increase and followed growing concerns about rising costs after consumer inflation climbed to a three-year high in May.

Goods prices drive wholesale inflation higher

The bulk of the increase came from goods prices.

According to the Labor Department, nearly 80% of May's rise in final demand prices was attributable to a 2.8% increase in goods, while services prices rose a more modest 0.3%.

The data suggest that higher commodity and energy costs are exerting increasing pressure on businesses, although those costs are not always fully passed on to consumers.

A closer look at the report offered some reassurance for policymakers concerned about broader inflation trends.

Core PPI, which excludes volatile food and energy prices, rose 0.4% during the month.

While still elevated, the figure came in below economists' expectations of a 0.5% increase, indicating that rising fuel prices accounted for much of the recent inflation acceleration.

Nearly 80% of May’s increase in producer prices was driven by a 2.8% rise in final-demand goods prices, marking the largest gain since the data series began in December 2009.

Energy costs accounted for the bulk of that increase, with energy prices surging 10.7%.

Wholesale gasoline prices alone jumped 23.4%, according to the Bureau of Labor Statistics.

Consumers have already begun feeling the effects of higher energy costs.

Data released Wednesday showed consumer prices rose 4.2% in May from a year earlier, the highest annual inflation rate in three years, driven in part by rising gasoline prices.

Labor market remains resilient

Separate data released by the Labor Department on Thursday indicated that the labor market remains relatively stable despite signs of cooling hiring activity.

Initial claims for state unemployment benefits rose by 4,000 to a seasonally adjusted 229,000 during the week ended June 6.

The figure came in above economists' expectations of 219,000 claims but remained broadly consistent with a labor market characterized by low layoffs.

Economists noted that claims often rise at the start of summer as some states permit non-teaching school employees to collect unemployment benefits during the holiday period.

The latest figures follow last week's employment report, which showed the economy added jobs for a third consecutive month while the unemployment rate held steady at 4.3%.

Hiring momentum begins to soften

While layoffs remain limited, several indicators suggest hiring demand is losing momentum.

A recent survey from the National Federation of Independent Business showed its employment measure declined for a third straight month in May.

The share of business owners planning to create jobs over the next three months also fell to its lowest level in six years.

Economists have pointed to ongoing policy uncertainty as a factor weighing on hiring decisions.

Businesses continue to navigate the effects of past tariff policies as well as geopolitical risks stemming from the US-led conflict with Iran.

The number of people receiving unemployment benefits after an initial week of aid, often viewed as a proxy for hiring conditions, increased by 24,000 to 1.795 million in the week ended May 30.

The data suggest that while workers are not losing jobs at a rapid pace, those who become unemployed are finding it increasingly difficult to secure new positions.

That trend was reflected in last week's employment report, which showed the number of Americans unemployed for 27 weeks or longer rose to its highest level since December 2021.

The median duration of unemployment also increased to 11.6 weeks, the longest stretch since November 2021.