Dive Brief:

• Wholesale prices surged at an above-forecast pace of 1.4% last month and 6% on an annual basis, spurred by war-induced increases in fuel prices.
• The producer price index, gauging what companies pay for goods and services, advanced in the largest 12-month increase since December 2022, the Bureau of Labor Statistics said Wednesday. As the Iran war jacked up oil prices, the cost of transportation and warehousing rose 5% in April and wholesale energy prices rocketed 7.8%, the BLS said.
• “The spike in costs is really the first evidence of higher fuel costs hitting other sectors of the economy,” Scott Helfstein, head of investment strategy at Global X ETFs, said in a note. “The question is how much pressure the economy can take, both consumers and businesses, before there is real demand destruction.”

Dive Insight:

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

After the outbreak of hostilities, U.S. equity prices plunged before a U.S.-Iran cease fire prompted a rebound last month.

Yet the oil shock will likely reverberate across supply chains for some time after resolution of the conflict, Susan Collins, president of the Federal Reserve Bank of Boston, said Wednesday in a speech.

“Even if efforts to resolve hostilities and reopen the Strait of Hormuz succeed relatively soon, it will likely take some time to rebuild infrastructure and replenish inventories,” she said.

“So, supply disruptions could persist, possibly inducing lasting changes to some global linkages,” she said.

Last month the Consumer Price Index, on a 12-month basis, surged at a three-year high of 3.8%, propelled by soaring energy prices.

The cost of energy jumped 17.9% during the past year, spurred by a 28.4% increase in the price of gasoline and 54.3% gain in the price of fuel oil, the BLS said Tuesday.

Inflation has exceeded the Fed’s 2% target for more than five years and for several months has risen further from the central bank’s target.

Three policymakers dissented from a Fed statement last month, saying they favored removing an indication that the central bank was inclined toward trimming the federal funds rate.

“More than five years of above-target inflation has reduced my patience for ‘looking through’ another supply shock,” Collins said, referring to the supply disruptions from the pandemic and tariffs this decade.

“While it is not in my most likely outlook, I could envision a scenario in which some policy tightening is needed to ensure that inflation returns durably to 2% in a timely manner,” she said. Collins will not rotate onto the policy-setting Federal Open Market Committee until 2028.

Most of the inflationary impact from the highest tariffs since the 1930s has already flowed through the economy, she said.

“My staff estimates that much of the pass-through of tariffs into total inflation, perhaps about 70%, has already taken place,” Collins said.