Producer Price Inflation Hits 6.5%, But the Fed May Still Pause Rate Hikes — Here's Why

May PPI surged to 6.5%, while core PPI came in at 4.9%, indicating the upside inflation surprise was driven more by energy than by broad-based price pressure. The report raises the odds of a tougher Fed tradeoff between hiking rates to contain inflation and holding steady to avoid slowing growth. Markets may treat this as a potentially hawkish input for rates and yields.

Analysis

May PPI surged to 6.5%, while core PPI came in at 4.9%, indicating the upside inflation surprise was driven more by energy than by broad-based price pressure. The report raises the odds of a tougher Fed tradeoff between hiking rates to contain inflation and holding steady to avoid slowing growth. Markets may treat this as a potentially hawkish input for rates and yields.