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Disrupted global supply chains placing upward pressure on US goods prices

Robert Brusca

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Industrial production in the United Kingdom took another step up in April, rising by 0.4% after gaining 1.2% month-to-month in March. Consumer durable goods production fell by 0.7% and capital goods production fell by 0.6% in April, but nondurable goods production increased by 0.8% and intermediate goods output increased by 1.1%. Given the weighting for these sectors, all that amounted to an overall increase of 0.4% in manufacturing output.

In March, there had been month-to-month increases in each of these sectors. Sector by sector gains were quite substantial in March for all the sectors, except for capital goods output up only 0.1%; capital goods output has been weak over the last several months and has come through a period of some significant volatility.

Sequentially, U.K. manufacturing output has registered gains over 12 months, six months and three months. The 12-month gain is only 1%, but over six months output expands at a 6.4% annual rate, and while it stepped back to a 5.7% rate of expansion over three months, there is a hint of acceleration.

**Sequential trends in manufacturing output**
Looking at sectors, there are two that have accelerated over this time span; the output of consumer nondurable goods and the output of intermediate goods. Nondurable goods output rose by 0.4% over 12 months, then stepped up to an 8.1% pace over six months and rose further to an 11.1% pace over three months. For intermediate goods, output declined by 0.9% over 12 months, then switched to post a gain at a 3.2% pace over six months and then again at a 9.7% annual rate over three months. Durable goods output has a hint of acceleration but doesn't quite go over the hurdle as its 8.7% year-over-year growth rate fades to 5.7% over six months but then jumps back to 10.1% over three months. Capital goods output is more indeterminate, with a 3.9% growth rate over 12 months, a very strong 9.5% growth rate over six months, and then a decline of 1.9% at an annual rate over three months.

On a quarter-to-date (QTD) basis, all the sectors are showing increases except for capital goods where output is falling at a 3.1% annual rate. The QTD calculation as of April is only one month into the new quarter; the quarter’s overall output is growing at a 7% annual rate. Manufacturing sectors have recovered fairly well from the difficulties during COVID. The exception is intermediate goods where output as of April 2026 is still 17% below what it was back in January 2020. However, if we evaluate the sectors on their current year-over-year growth rates, we'll find consumer durables has a strong standing at their 86th percentile and capital goods, despite its recent weakness, has a 71.5 percentile standing among its growth rates back to January 2012. However, manufacturing growth overall at 1.0% has only a 43.6 percentile standing. Intermediate goods (that registered a decline over 12 months) have a 40.7 percentile standing. Consumer nondurables, despite their current acceleration string, have only a 25.6 percentile standing, but that's based on the year-over-year growth rate of only 0.4%.

**U.K. industries**
The industry level growth rates and standings for the United Kingdom show more diversity, with current growth rates above their medians for textile & leather as well as for utilities. Food, motor vehicles, and mining generate growth rates below their medians on data back to 2012. However, comparing aggregate levels of output to January 2020 shows three sectors: textile & leather, mining & quarrying, and utilities that report a level of output below where it was over six years ago. The shortfalls in mining & quarrying and in utilities are stunningly weak.

Overall, the manufacturing sector is doing quite well by comparison with past trends. But parts of the U.K. economy are clearly going through some massive changes.

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United Kingdom

U.K. IP Makes Some Recovery

Andrew Cates

**Growth Forecasts Drift Lower — But AI Keeps the Story Complicated**
The three-month change in consensus GDP growth forecasts for 2026, drawn from the latest Blue Chip survey, tells a story of broadly deteriorating expectations with one conspicuous exception. The Middle East conflict and the associated surge in energy prices have left their mark across most major economies. The euro area, the UK and the United States have all seen meaningful downward revisions to their 2026 growth outlooks over the past three months, as higher energy costs squeeze household real incomes and dampen business investment intentions. Energy-importing economies in Europe are particularly exposed, and the Blue Chip panel’s international section confirms that growth expectations across much of the continent remain subdued, highlighting persistent regional differences in economic performance. Japan, Australia, India and several emerging markets have seen modest negative revisions for similar reasons. The lone outlier is Taiwan, whose bar extends well above the rest — a direct reflection of the extraordinary momentum in the semiconductor and AI supply chain. Taiwan’s 2026 growth forecast has been revised up by around 3.2 percentage points over the past three months, a revision of a magnitude rarely seen in this survey for any economy.

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**The More Worrying Signal: 2027 Inflation Forecasts Are Drifting Up Too**
If the GDP revision chart tells a story about the near-term growth impact of the energy shock, this second Blue Chip chart carries a more troubling message for central banks. It shows how consensus forecasts for CPI inflation in 2027 — not 2026, but the year after — have evolved since January. The pattern is striking. Across all four major economies, 2027 inflation expectations have been revised upward since March and now sit at or above the 2% threshold that most central banks treat as their definition of price stability. The US forecast has moved back up to 2.5%; the UK has surged from just above 2% to 2.5%; Japan and the euro area have also drifted higher. Near-term inflation revisions driven by an oil price shock are one thing — central banks can typically look through transitory supply-side disturbances if domestic dynamics remain anchored. But upward revisions to the 2027 outlook are harder to dismiss. They suggest that forecasters are no longer confident the current energy shock will be fully absorbed without leaving a persistent mark on the inflation trajectory — and explain why not a single Blue Chip panellist now expects central banks to simply look through energy-driven inflation.


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**The Fed’s Dilemma: A Benign Labour Cost Story Beneath Hot Headlines**
This week's US inflation data showed headline CPI jumping sharply in May, driven by higher energy costs. But arguably the more telling number was core inflation, which edged only slightly higher in year-on-year terms — a signal that the price shock remains, for now, predominantly supply-side in character rather than one rooted in domestic demand or wage dynamics. That distinction matters, and it is reinforced by the unit labour cost data, which — though backward-looking, with the latest figures pertaining to Q1 2026 — tell a reassuring story. Labour costs are typically the most persistent component of domestic inflation — energy prices can spike and retreat, but once wage growth becomes embedded, it tends to stay. The fact that unit labour cost growth remained subdued through the first quarter, even as headline CPI was climbing, suggests that domestic wage-price dynamics had not yet taken hold. Whether that remains true as the energy shock feeds through is the key question.

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**Supply Chain Stress Returns — and Threatens the PPI Pipeline**
The benign unit labour cost picture is partially offset, however, by a less comfortable development in global supply chains. The New York Fed’s Global Supply Chain Pressure Index has risen sharply in recent months, reversing much of the normalisation achieved since the post-pandemic peak in 2021. The driver is familiar: Middle East instability has disrupted shipping routes, extended delivery times and raised logistics costs across manufacturing supply chains globally. Supply chain pressures feed into producer price inflation with a lag of roughly three to six months, and the PPI pipeline is already showing the effects — US PPI rose 6.0% year-on-year in April, and manufacturing PMI surveys show input cost pressures building across multiple major economies.

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**Energy: The Master Variable**
As we have noted in previous editions of this publication, real energy prices have risen persistently since the early 2000s — a development that may explain more of the trend slowdown in global growth and productivity than is widely appreciated. The chart illustrates that elevated real energy costs are not a new phenomenon: they predate the current Middle East crisis by two decades and were well entrenched long before the US–Iran escalation began in March. What the conflict has done is bring a slow-moving structural story back into sharp focus. For central banks, the implication is an uncomfortable one. Managing inflation whose roots lie in long-run energy supply constraints is a fundamentally different challenge from managing a demand-driven price cycle — and one that conventional monetary policy tools are poorly equipped to address alone. That is not an argument for policy inaction, but it is a reminder that durable price stability is likely to require, among other things, a sustained expansion in the supply of affordable and reliable energy.

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**China’s Exports to the US: A Quiet Normalisation**
Our final chart offers a more encouraging note. This week’s China trade data showed a meaningful improvement in Chinese export growth to the United States, consistent with a partial normalisation of bilateral trade flows that has been evident since the spring tariff truce. Chinese exports to the US had contracted sharply in 2025 as tariff escalation disrupted supply chains. The recovery now underway matters for two reasons. First, it provides a partial deflationary offset: a resumption of Chinese goods exports tends to exert downward pressure on global goods prices, which matters when services and energy inflation are already elevated. Second, it suggests that despite the geopolitical noise, commercial logic continues to reassert itself. Against that backdrop it has been of note that the renminbi remains the strongest-performing major Asian currency year-to-date, a signal that confidence in the trade normalisation story retains some foundation. Whether this continues will depend on whether the current phase of diplomatic pragmatism holds.

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Global financial markets have been unsettled in recent days. Last week’s  stronger-than-expected US employment report wrong-footed investors positioned for a more accommodative Federal Reserve, triggering a sharp reassessment of rate expectations and a notable sell-off in technology stocks — a sector that had been among the primary beneficiaries of the prevailing low-rate narrative. Persistent instability in the Middle East, in the meantime, has continued to keep energy markets on edge, with Brent crude remaining elevated and supply disruption risks showing little sign of abating. Against this backdrop, this week's charts draw on the latest Blue Chip Economic Indicators survey to assess where the global growth and inflation outlook now stands. The headline finding is sobering: GDP growth forecasts have been revised lower across most major economies over the past three months, with the energy shock doing real damage to the outlook in Europe— even as Taiwan's AI-driven semiconductor boom delivers the largest upward forecast revision of any economy in the survey (charts 1 and 2). Inflation expectations tell an equally uncomfortable story, with consensus forecasts for CPI in 2027 now sitting above most central banks' 2% target — a sign that the current shock may be leaving a more persistent scar than policymakers would like. Beneath the headline noise, however, recent US unit labour cost data offer a modestly reassuring signal (chart 3), even as renewed supply chain stress threatens the PPI pipeline (chart 4). We also revisit a structural energy argument made in previous editions of our Charts of the Week document (chart 5), before closing with China's trade data, where a normalisation in export flows to the United States has been quetly unfolding (chart 6).

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Charts of the Week: Inflation at the Crossroads

Winnie Tapasanun

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The Producer Price Index for final demand rose a stronger-than-expected 1.1% m/m in May, the ninth consecutive m/m rise, after gains of 1.1% in April (+1.4% initially) and 0.7% in March (unrevised), according to the Bureau of Labor Statistics. A 0.7% m/m May increase had been expected in the Action Economics Forecast Survey. The year-over-year rate accelerated to 6.5% in May, the highest since November 2022, from 5.7% in April (2.7% in May 2025). Compared with May CPI data (+0.5% m/m, +4.2% y/y, released on June 10), the PPI figures reinforce the view that U.S. inflationary pressures remain elevated on both the producer and consumer sides.

Producer prices excluding food & energy grew 0.4% (4.9% y/y) in May after rises of 0.7% in April (+1.0% initially) and 0.3% in March (+0.2% previously). A 0.5% m/m increase had been expected. Another core price measure—producer prices less food, energy & trade services—advanced 0.8% (5.1% y/y), the strongest of 13 straight m/m gains, after increases of 0.5% in April (+0.6% initially) and 0.2% in March (unrevised).

The May PPI 1.1% m/m rise was led by a 10.7% jump (36.6% y/y) in energy prices—the fourth consecutive m/m increase and the largest on record—following a 7.5% April gain. The surge in energy prices reflected m/m increases of 23.4% (69.5% y/y) in gasoline, 16.3% (87.0% y/y) in home heating oil & distillates, 15.7% (105.9% y/y) in diesel fuel, 15.6% (37.5% y/y) in natural gas liquids, and 0.4% (2.1% y/y) in residential natural gas. In contrast, prices for residential electric power, the only declining category, fell 0.2% (+4.0% y/y) in May following two successive m/m gains.

Food prices rose 0.6% (2.6% y/y) in May, the third m/m rise in four months, after a 0.2% increase in April (unrevised) and a 0.6% decline in March (unrevised). Food prices for exports (1.8%; 4.8% y/y) and finished consumer foods (0.4%; 2.2% y/y) increased m/m in May, while prices for government purchased foods (-0.1%; +3.4% y/y) dipped m/m following five straight monthly rises.

The PPI for final demand goods climbed 2.8% (10.4% y/y) in May, the fourth consecutive m/m increase and the biggest on record, following a 1.9% rise in April (+2.0% initially). The PPI for final demand goods less food & energy rose 0.8% (5.1% y/y) in May after a 0.7% rise in April—marking the largest m/m gain since April 2022 and continuing its string of m/m increases since August 2023. Prices for final demand finished goods less food & energy rose 0.3% (3.7% y/y) after a 0.4% April rise. Finished consumer goods prices less food & energy grew 0.3% (3.5% y/y) in May after a 0.4% advance in April, with durable consumer goods prices up 0.3% (3.3% y/y) and core nondurable consumer goods prices up 0.3% (3.7% y/y). Prices for private capital equipment increased 0.3% (3.9% y/y) for the third successive month in May. Prices for government purchased goods excluding foods & energy rose 1.0% (5.6% y/y), extending m/m gains since November 2024.

Prices for final demand services grew 0.3% (4.9% y/y) in May, the ninth straight m/m rise, following increases of 0.7% in April (+1.2% initially) and 0.2% in March (unrevised). Trade services prices fell 1.1% (+4.1% y/y), the first m/m fall since February, after a 1.3% April increase. Services prices of transportation & warehousing rose 2.6% (14.2% y/y) in May, the seventh consecutive m/m rise, while services prices less trade, transportation & warehousing increased 0.7% (4.2% y/y), the fourth m/m gain in five months.

Prices for final demand construction rebounded 0.2% (3.5% y/y) in May, up for the fourth time in five months, following a 0.1% easing in April (unrevised). Construction prices for private capital investment edged up 0.1% (3.4% y/y) in May, the fourth m/m increase in five months; construction prices for government rose 0.2% (3.7% y/y) after a flat April reading.

Meanwhile, prices for intermediate demand processed goods climbed 3.5% (13.3% y/y) in May, the strongest of seven straight m/m increases and the largest since March 2021, on top of a 2.7% rise in April (unrevised), led by a 10.4% jump (43.6% y/y) in intermediate demand processed fuel & lubricant costs.

The PPI data are published by the Bureau of Labor Statistics and can be found in Haver’s **USECON** database. Further detail is contained in **PPI** and **PPIR**. The expectations figures are available in the **AS1REPNA** database.

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- May PPI +1.1% m/m (+6.5% y/y, highest since Nov. ’22), driven by a record 10.7% rise in energy and 0.6% in food prices.
- PPI ex foods & energy +0.4% (+4.9% y/y); services +0.3% (+4.9% y/y); construction +0.2% (+3.5% y/y).
- Core goods prices +0.8% (+5.1% y/y), largest m/m increase since Apr. ’22.
- Intermediate demand processed goods prices +3.5% (+13.3% y/y), strongest m/m gain since Mar. ’21.

U.S. Producer Prices Advance in May Led by Energy

Kathleen Stephansen, CBE

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Initial claims for unemployment insurance rose 4,000 to 229,000 in the week ending June 6, from an unrevised level of 225,000 in the week ending May 30. This is the highest level since the February 7 week. The four-week average rose to 219,000 in the June 6 week from 214,750 in the week ending May 30, also unrevised. The Action Economics/Haver Analytics Survey looked for 220,000 claims to have been filed. 

The total number of unemployment insurance beneficiaries—also known as “continuing claims”—rose by 24,000 to 1.795 million in the week ending May 30, from 1.771 million in the week ending May 23, revised from 1.777 million. The four-week moving average rose to 1.780 million in the May 30 week from 1.776 million, revised from 1.777 million in the May 23 week. The insured unemployment rate was unchanged at 1.2% in the week of May 30. Except for a one-week dip to 1.1% in the week of April 25, the insured unemployment rate has been at 1.2% since the week of November 29, 2025.

The insured unemployment rate varied greatly across individual states and territories. In the week ending May 23, the highest unemployment rates were in New Jersey (2.07%) and Washington (2.03%). The lowest rates were in South Dakota (0.27%), Florida (0.32%), Louisiana (0.34%), Alabama (0.39%), North Carolina (0.40%), Arkansas (0.42%), Tennessee (0.47%), Kentucky and Virginia (both 0.49%). Rates in other notable states include California (1.84%), New York (1.56%), Illinois (1.41%), Pennsylvania (1.28%), and Texas (1.05%). These state data are not seasonally adjusted.

Data on weekly unemployment claims are from the Department of Labor itself, not the Bureau of Labor Statistics. They begin in 1967 and are contained in Haver’s **WEEKLY** database and summarized monthly in **USECON**. Data for individual states are in **REGIONW** back to December 1986.

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- New claims rose by 4,000 to 229,000 in the week ending June 6.
- Continuing claims rose by 24,000 to 1.795 million.
- The insured unemployment rate was unchanged at 1.2% in the week of May 30.

U.S. Initial Unemployment Claims Rose in the Week of June 6

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Channeling ‘The Who,’ the ECB implemented its _'We Won’t Get Fooled Again'_ rate hike. During COVID, inflation spiked around the world as central bankers were late with rate hikes. Arguably, too many of them followed the lead of the U.S. Federal Reserve. The ECB leaned against that by hiking its key deposit rate by 25bp today.

Both the chart and the table show how inflation has recently soared sharply in the countries of the European Monetary Union. However, the price gains are concentrated in the headlines and driven by oil prices. Still, oil price gains this large and persistent—and potentially long-lasting—will permeate the pricing of most goods since there will be knock-on effects through transportation costs. The ECB has therefore taken a step to keep in line with the increase in energy prices.

If there are further impacts from energy prices, the ECB has the door open to move again. But if price pressures wane, the ECB will be under no pressure to act again.

For now, we can see that headline inflation across the European economic area is generally accelerating strongly and somewhat uniformly. The three-month annualized HICP rose at a 6.3% annual rate. With three-month inflation among these 11 long-lived EMU members, the highest three-month pace is 13.5% in Luxembourg. Germany has the lowest inflation over three months, at a 4% pace.

The 12-month inflation pace is better contained, of course, with a top gain of 4.5% in Greece compared to the slowest pace at 2.5% in France and Germany. Over three months and 12 months, headline inflation shows deceleration occurring in none of these countries on these two timelines. So, the ECB action is timely.

The median gain for the group over three months is 6.5%, close to the overall EMU weighted result. The 12-month median is at 3.2%, also close to the 12-month EMU pace.

By comparison, I calculate the median for the core at 2.2% over three months and 2.0% over 12 months—right on the ECB’s inflation objective. Core inflation is never the central bank’s target, but it does strip out the volatility. So, we can understand the ECB’s move as an effort to keep up with what might be a changed trend. And if it is not a changed trend, then the ECB can peel its rate hike back. But for now, it is going to stay close to the short-term impact on the inflation rate to be sure that it will control inflation developments in the future. This is a good way to not repeat past mistakes.

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Europe

EMU Inflation and An ECB Rate Hike

Michael J. Moran

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The headline Consumer Price Index rose 0.5% in May, matching expectations and slowing from increases of 0.9% and 0.6% in March and April, respectively. Although the month-to-month increase slowed in May, it still pulled the year-over-year change higher, now at 4.2% versus 3.8% in April. The year-over-year change totaled 2.4% in both January and February, before the conflict in the Middle East became a factor in the inflation setting.

With the Middle East situation still unsettled, energy prices remained problematic, increasing 3.9% in May, slower than the blistering advance of 10.9% in March, but a touch firmer than the increase in April. Gasoline prices have been the driving force behind the increase in the energy component of the CPI. However, reported gasoline prices fell slightly in the first week of June. Perhaps next month’s report will bring some relief on the energy front.

Interestingly, energy pressure has been concentrated in petroleum-based products (fuel oil and gasoline). Charges for electricity have stirred a bit in the past three months, but the average increase of 1.2% is well shy of price changes in oil-related products. The price of natural gas services has declined for three consecutive months (average drop of 0.5%), which has left a year-over-year change of 3.0%.

Food prices posted a worrying increase in April (0.5%), but they were contained in May, rising 0.2%. Prices for food at home (i.e., grocery store prices), which are important for households facing affordability issues, rose less than 0.1%, although the year-over-year change of 2.7% will still pose a challenge for many. Prices for food away from home (i.e., prices at restaurants and bars) rose 0.3% in May, which left a year-over-year advance of 3.5%.

The core CPI (excluding food and energy) rose 0.2%, less than the expected increase of 0.3% and a reading in the middle of the recent range. A jump of 0.4% in the prior month raised the possibility that elevated energy prices might be feeding through to prices in other sectors. However, the subdued advance in May hints at little pass-through thus far. Airfares also provide encouragement on this issue. Airline tickets are highly sensitive to fuel charges, but fare increases in recent months have not shown a noticeable acceleration. The average increase of 2.7% in airline tickets, although hardly slow, was slower than the jump of 3.9% in the first two months of the year, before the surge in energy prices. Airfares tend to move in waves, showing periods of brisk increases followed by months of discounts.

Within the core component, goods prices were tame, posting a decline of 0.1%. Prices of medical goods contributed importantly to the soft reading, with a drop of 0.7%, marking the third consecutive decline after a soft trend in the year before this softness. The year-over-year change in medica-care goods totaled -1.8%. Prices of new motor vehicles fell 0.3% after a drop of 0.2% in the prior month, leaving a year-over-year change of only 0.5%. 

Prices of core services rose 0.3% in May. The reading was not troubling when viewed in isolation, but it followed a jump of 0.5% in April and left the year-over-year increase at 3.4%, up from an average of 3.0% in the first three months of the year. Rent of primary residence has stirred in the past two months, increasing 0.5% in March and 0.4% in May, noticeably faster than the averages of 0.2% in the first three months of the year and in all of 2025. Not long ago, rents were an important factor behind elevated inflation readings. Results in April and May suggests that close monitoring is warranted.

The Consumer Price figures can be found in Haver's **USECON** database. The expectations figure is contained in the **AS1REPNA** database.

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- Gasoline prices drove the energy component higher again, but June might bring some relief.
- Little apparent pass through from energy to core.

May CPI: Another Jump in Energy Prices; Core Contained

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Mortgage applications jumped 10.8% w/w (10.0% y/y) in the week ending June 5, following a decline of 2.5% w/w (+11.7% y/y) in the week ending May 29, according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Applications for loans to purchase a house rose 7.3% w/w (3.5% y/y) in the latest week, after dropping 2.9% w/w (+6.3% y/y) in the May 29 week.  Applications for loan refinancing rose 15.3% w/w (20.0% y/y) in the week ending June 5, following a decline of 2.3% w/w (+20.3% y/y) in the May 29 week.

The effective interest rate on a 30-year fixed-rate loan rose 1bp to 6.78% in the week ending June 5 from 6.77% in the week ending May 29. The rate on 15-year fixed-rate mortgages rose 4bps to 6.16% in the June 5 week from 6.12% in the May 29 week. The 30-year Jumbo rate rose 6bps to 6.82% in the latest week from 6.76% in the May 29 week. The rate on a 5-year ARM rose 8bps to 6.23% in the June 5 week from 6.15% in the May 29 week.

The share of applications for refinancing an existing loan rose to 40.2% of total applications in the week of June 5 from 38.0% in the May 29 week. The adjustable-rate mortgage (ARM) share of activity edged up to 8.6% in the June 5 week from 8.5% in the May 29 week.

The average size of a mortgage loan rose 0.4% w/w (4.2% y/y) to $399,900 in the week ending June 5, following a decline of 4.8% w/w (+4.3% y/y) to $398,400 in the week ending May 29. The average size of a purchase loan rose 2.8% w/w (5.3% y/y) to $465,300 in the latest week, after declining 4.4% w/w (+3.3% y/y) to $452,800 in the May 29 week. The average size of a loan to refinance a mortgage declined 2.3% w/w (+6.7% y/y) to $302,500 in the week ending June 5, after declining 5.1% w/w (+11.4% y/y) to $309,600 in the May 29 week.

The Mortgage Bankers Association Survey covers 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. The base period and value for all indexes is March 16, 1990=100. The figures for weekly mortgage applications and interest rates are available in Haver’s **SURVEYS** database.

- Both applications for loans to purchase and applications for loan refinancing rose in the latest week.
- Interest rate on 30-year fixed-rate loans rose 1bp to 6.78%. 
- Average loan size edged up.

U.S. Mortgage Applications Jumped in the June 5 Week

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Once again, we are seeing Japan’s PPI creating a separation from the CPI. Both the CPI and PPI were trending lower before the attack on Iran. The CPI has better maintained its downtrend, but the PPI has been blasted higher. In 2021, there was also a huge spike in the PPI that the CPI did not follow immediately, although the CPI eventually responds, rising in a much more muted way.

These behaviors caution us from thinking that the CPI is going surge in step with the PPI but also warn us not to expect this gain to be ignored by the CPI. There will be a lagged response.

The PPI explosion is really strong, with the three-month annualized increase in the PPI and manufacturing prices both approaching 20%. Both measures are up at a much more muted 6% to 6.5% over 12 months, so the acceleration has been strong and sudden.

The table also shows lagged data that re-express the PPI trend to put it on the same timeline as Japan’s CPI and the U.S. and EMU PPIs. The PPI in the EMU has surged in line with the gains seen in Japan. However, in the U.S., the PPI has accelerated from a gain of 2.4% over 12 months to an annual rate rise of just 7.8% over three months.

But in Japan, the CPI and core CPI gauges have continued to temper their rises, using data through April and looking at sequential growth pressures on Japan’s CPI. It’s quite amazing!

Japan imports its oil and so would seem quite vulnerable to oil price spikes. However, because it is vulnerable, Japan takes steps to assure its supply and control its oil costs by arranging long-term contracts. That has helped to contain the impetus of surging global oil prices. Globally, oil (Brent, in dollars) is off sharply in May after turning slightly lower in April. Sequentially, Brent prices are up 44.4% over 12 months, up at a 110.2% annual rate over six months, and still up at 187.6% annualized rate over three months.

The table also shows some simple correlations with Brent prices. It demonstrates that the correlation between PPI prices of various sorts and Brent ranges from 0.4 to 0.5. But the correlation to Japan’s CPI price metrics is negative. So far, Japan’s CPI has been true to those results.

The Bank of Japan continues to struggle with its own view of the inflation risk. It is wary of damaging the economy but also concerned about allowing the door open to inflation because of its massive debt-to-GDP ratio. The BOJ is going to remain on inflation watch for some time.

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Japan

Japan’s PPI—The PPI Is Not the CPI

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The headline index on import prices rose 1.9% in May, close to the blistering pace in April and the fourth consecutive high-side reading. This recent pressure has pulled the year-over-year change to 6.7%, a distinct shift from last year when import prices showed no change over the 12 months of 2025.

Prices of petroleum products have been the most important factor behind the recent surge, increasing 13.0% in May after an average of 17.8% in the prior two months. However, prices excluding petroleum products also have stirred this year, as they have increased more than 0.6% in each of the past five months. May posted the firmest increase in this string of brisk readings (1.3%). Prices of consumer goods had been increasing moderately in early 2026, but they jumped 0.5% in May. The changes in capital and consumer goods led to an increase of 0.8% in nonpetroleum prices in May and an average of 0.6% in the first five months of the year.

Some observers might seek to look for the effects of tariffs on import prices, but these figures would not be especially helpful in this regard, as prices are recorded before the imposition of tariffs. However, if foreign producers wished to absorb the tariff burden to remain competitive in the US market, they could reduce invoiced prices to keep post-tariff prices steady. Indeed, nonpetroleum prices softened after April of last year following the announcement of President Trump’s Liberation Day tariffs. The subsequent easing of some of the draconian tariffs and the nullification of tariffs imposed under the International Emergency Economic Powers Act might be factors leading importers to return to original prices this year. Given that the pressure on import prices ex-petroleum has been concentrated in the capital goods area, there does not seem to be a rush to return to pre-tariff pricing.

On the export side, prices rose 1.3% in May, continuing the firm pace seen in the preceding four months. Petroleum prices have played a role in this pressure, as shown by an increase of 2.4% in the industrial supply category (petroleum prices alone are not available on the export side). Food prices also have jumped this year, increasing 0.8% in May after an average of 1.2% in the prior three months. Prices of capital goods were tame in the early months of the year, but they have firmed in the past two months (0.5% in April and 0.7% in May).

These import and export price series are not seasonally adjusted; they can be found in Haver’s **USECON** database. Detailed figures are available in the **USINT** database. The expectations figure from the Action Economics Forecast Survey is in the **AS1REPNA** database.

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- Petroleum products led import prices higher, but capital goods also had an influence.
- Petroleum was also a factor on the export side; some stirring in food and capital goods.

Import and Export Prices: Firm in May

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