'Hormuz Shock'... U.S. May PPI Surges 6.5% (Comprehensive)

Largest Increase in Three and a Half Years
Soaring Energy Prices Drive Inflation
Core PPI Also Shows Significant Growth

The surge in energy prices caused by the war in Iran has spread across production sites, resulting in the largest increase in U.S. producer prices in three and a half years. Following the previous day's Consumer Price Index (CPI), the Producer Price Index (PPI) has also risen more strongly than expected, reigniting concerns about inflation.

On June 11 (local time), the U.S. Department of Labor announced that the May PPI rose by 6.5% compared to the same period last year. This is the highest increase since November 2022 (7.4%). On a month-on-month basis, it climbed by 1.1%, significantly exceeding the Dow Jones expert forecast of 0.7%.

The Producer Price Index reflects the costs that companies bear in the process of producing goods and services. It is generally considered a leading indicator that predicts future price trends, as it tends to be reflected in consumer prices after a certain time lag.

This latest price increase was driven by the surge in energy prices. The Department of Labor explained that the final demand goods price jumped 2.8% from the previous month, marking the largest increase since the relevant statistics began being compiled in 2009. About 80% of the total increase was attributable to higher energy prices. In particular, gasoline prices surged by 23.4% from the previous month, accounting for more than half of the goods price increase. Prices of diesel, jet fuel, liquefied natural gas, and industrial chemicals also rose across the board.

It is believed that the prolonged blockade of the Strait of Hormuz caused international oil prices to soar, and concerns over logistics disruptions in the Middle East have combined to drive up energy costs, thereby increasing production costs for U.S. companies.

Notably, even the core index excluding energy prices showed a strong upward trend. The core PPI, which excludes food, energy, and trade services, rose 0.8% from the previous month and 5.1% from a year earlier. The month-on-month increase is the highest since March 2022, and the annual increase is also the highest since October 2022.

This suggests that price pressures are spreading throughout the industry, beyond just the oil shock. In fact, prices for plastic resins and industrial chemicals rose, and the prices for transportation and warehouse services increased by 2.6% compared to the previous month.

Prices for intermediate goods used in production processes also jumped sharply. Processed intermediate goods prices rose by 13.3% year-on-year, while unprocessed intermediate goods prices surged by 22.2%, both marking the highest levels since 2022. Crude oil prices increased by 11.8% from the previous month, and diesel prices by 15.7%.

The market is concerned that energy-driven inflation could be passed on to consumer prices. The May CPI, announced the previous day, also rose by 4.2% year-on-year, recording the highest increase in three years and one month.

As a result, market expectations for an interest rate cut are rapidly receding. Investors believe that the Federal Reserve, led by Chairman Kevin Warsh, will find it difficult to lower rates for the time being. According to CME FedWatch, the interest rate futures market reflects about a 30% probability that the benchmark rate will remain unchanged through the end of the year, and about a 69% probability of one or more rate increases.

This content was produced with the assistance of AI translation services.