At a Glance

  • U.S. wholesale prices rose 1.4% month-over-month in April and 6% year-over-year, exceeding market expectations, driven mainly by war-related fuel price increases.
  • The Producer Price Index (PPI), which measures the costs businesses pay for goods and services, recorded its largest 12-month increase since December 2022. Data released by the U.S. Bureau of Labor Statistics on Wednesday showed that the Iran war pushed up oil prices, with transportation and warehousing costs rising 5% in April and wholesale energy prices surging 7.8%.
  • "The cost surge is the first clear evidence of fuel price increases rippling through other sectors of the economy," said Scott Helfstein, head of investment strategy at Global X ETFs, in a report. "The question is how much pressure the economy, consumers, and businesses can withstand before real demand destruction occurs."

In-Depth Analysis

Many investors and economists expect that the near-total blockade of the Strait of Hormuz will be temporary, and that inflation will moderate as shipments of oil and other products resume.

After hostilities broke out, U.S. stocks plunged before rebounding following the U.S.-Iran ceasefire last month.

However, Boston Federal Reserve Bank President Susan Collins said in a speech on Wednesday that the oil shockcould continue to affect supply chains for some time even after the conflict is resolved。

"Even if efforts to resolve the conflict and reopen the Strait of Hormuz succeed relatively quickly, rebuilding infrastructure and replenishing inventories could still take time," she said. "Therefore, supply disruptions may persist and could even cause lasting changes to certain global linkages."

Last month, the Consumer Price Index (CPI) rose 3.8% year-over-year, hitting a three-year high, driven mainly by surging energy prices. Data released by the U.S. Bureau of Labor Statistics on Tuesday showed thatenergy costs rose 17.9% over the past year, with gasoline prices up 28.4% and fuel oil prices up 54.3%.

Inflation has exceeded the Federal Reserve's 2% target for more than five consecutive years and has moved further away from the central bank's goal in recent months.

Last month, three policymakers dissented from the Fed's statement, advocating for the removal of language indicating the central bank's inclination to lower the federal funds rate.

"Inflation persistently above target for more than five years has reduced my patience for 'looking through' another supply shock," Collins said, referring to supply disruptions caused by the pandemic and tariffs this decade. "While it is not my most likely outlook, I can envision a scenario that would require modest policy tightening to ensure inflation returns to 2% in a timely and lasting manner." Collins will not rotate into the policy-setting Federal Open Market Committee (FOMC) until 2028.

She said most of the inflationary impact of the highest tariffs since the 1930s has already transmitted into the economy. "My staff estimates that roughly 70% of the pass-through effect of tariffs on overall inflation has already materialized," Collins said.