Inflation facing U.S. businesses surged in May to its highest level since November 2022 amid higher energy prices stemming from the Iran war. 

The Producer Price Index, which registers inflation before it reaches consumers, soared 6.5% in May from a year ago, the Labor Department reported on Thursday. On a monthly basis, the PPI rose 1.1% from April, a faster pace than the 0.6% increase forecast by economists polled by financial data firm FactSet. 

The hotter-than-expected reading comes a day after the Consumer Price Index surged in May to an annual rate of 4.2%, its fastest pace in more than three years. Although the PPI doesn't directly signal changes in consumer prices, it can feed into broader inflation if businesses pass those costs on to customers. 

The data underscores the stark shift in the nation's inflation outlook this year, with gasoline prices remaining sharply elevated. Resurgent inflation is also likely to keep the Federal Reserve on the sidelines, with some Wall Street economists speculating that policy makers are more likely to hike interest rates than to cut them.

The Fed is widely expected to hold interest rates steady at its next meeting, scheduled for June 16-17, as officials monitor the latest inflation data.

"When determining the direction of monetary policy, the Fed looks to today's wholesale inflation figures as one piece in the larger puzzle," said Elizabeth Renter, senior economist at NerdWallet, in an email. "The likelihood of a rate hike in the coming months has increased with this week's consumer and wholesale inflation data, but the Fed will most likely wait another month before taking that step."

Wholesale gasoline prices surged by more than 23% from April to May, and by nearly 70% from the year-ago period, the PPI data showed. Gas prices have edged down in June, though the latest PPI report doesn't reflect this because it captures data from the prior month.

Excluding volatile food and energy prices, so-called core wholesale prices rose 0.4% in May from the previous month and 4.9% from May 2025.

Wholesale prices can offer an early look at where consumer inflation might be headed. Economists also watch it because some of its components, notably health care and financial services, flow into the Fed's preferred inflation gauge — the Personal Consumption Expenditures, or PCE, index.

"With both the May CPI and PPI data in hand, our PCE tracking nowcast points to a 0.5% rise in headline prices, and a 0.3% rise in core prices in May," Oxford Economics U.S. economist Grace Zwemmer said in a research note. "This would still push headline PCE up to 4.2%, its hottest reading since April 2023."