The Producer Price Index (PPI) for final demand—which measures prices from the sellers’ perspective—for the previous 12 months hit its highest level in more than three years, according to a report published Thursday by the Bureau of Labor Statistics. PPI in May increased 1.1 percent, for an annual increase of 6.5 percent, the largest 12-month increase since November 2022.

May’s PPI increases significantly topped economists’ expectations. Analysts polled by Reuters forecasted an increase of just 0.7 percent.

The surge in prices was driven by increased energy costs, which have risen sharply due to the ongoing war in Iran. The closure of the Strait of Hormuz has reduced available energy supplies, creating significant shortages. The report noted that “over half of the May advance in prices… is attributable to a 23.4-percent increase in the index for gasoline.” Other fossil fuel–derived commodities, including plastics, industrial chemicals, fertilizer, and diesel and jet fuels, have also been adversely affected.

The continued surge in wholesale prices suggests that headline inflation will remain high, information that will factor into the Federal Reserve’s decision next week on how to adjust its benchmark interest rates. President Donald Trump has advocated for rate cuts, a move the central bank will find difficult to make in an inflationary environment.