Wholesale prices accelerated again in May as inflation tightened its stranglehold on the US economy, adding to the financial pressure on millions of Americans.
The Labor Department said Tuesday that its producer price index, which measures inflation at the wholesale level before it reaches consumers, climbed 10.8% in May from the previous year. On a monthly basis, prices grew by 0.8%. Although that was slightly lower than the 10.9% forecast from Refinitiv economists, the reading – near a record-high of 11.5% notched in March – suggests that inflationary pressures in the economy remain strong.
Core inflation at the wholesale level, which excludes the more volatile measurements of food and energy, increased 0.5% for the month, following a 0.6% increase in April. Over the past 12 months, core prices climbed 6.8%.
Overall, prices for goods jumped 1.4% last month, the fifth consecutive rise and the biggest contributor to the headline inflation figure. That included a 5% gain for energy costs and an 8.4% leap for gasoline prices. The services index, meanwhile, advanced 0.4% in May, with increases in transportation and warehousing services accounting for more than half of the gain.
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The surge in wholesale prices comes on the heels of a separate Labor Department report released last week that showed the consumer price index rose 8.6% in May from a year ago, faster than expected. It marks the fastest pace of inflation since December 1981.
Rampant inflation has become a major political liability for President Biden ahead of the November midterm elections, in which Democrats are expected to lose their already razor-thin majorities. Surveys show that Americans see inflation as the biggest problem facing the country – and that many households blame Biden for the price spike.
Soaring consumer prices have also forced the Federal Reserve to tighten monetary policy at the fastest pace in two decades, raising the risk of the economy plunging into a recession. Policymakers already raised the benchmark interest rate by 50-basis points – double the usual size – in May and are expected to approve similarly sized increases in June, July and September.
The worse-than-expected inflation reading last week has also put the previously unthinkable on the table: A mega-sized, 75-basis point rate increase in June or July. About 90% of trades are penciling in a 75-basis point hike at the conclusion of the Fed’s policy-setting meeting on Wednesday, which would mark the first move of its kind since November 1994.
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“The combination of today’s PPI and last Friday’s CPI paints a clear picture of an economy overheating, with persistent inflation further back in the production chain,” said Peter Earle, research fellow at the non-profit American Institute for Economic Research. “It looks like there is a long, hot summer ahead. Fed policies, to this point, have been ineffectual.”