Americans are already paying more for gas, groceries, and everyday services.
Now, a new analysis from Bank of America suggests the next inflation problem may be building before it fully reaches consumers.
The concern is not just that prices are already high. It is that business costs are rising again, and those increases can eventually ripple through the economy.
The impact may be seen in how shoppers feel in stores and restaurants, on travel bills, and in monthly household budgets.
The latest government inflation data showed a split picture. Consumer prices, or what the shoppers pay, rose in May, though some parts of the report were not as expected.
Producer prices, however, showed a sharper increase in the costs businesses bear.
That matters because producer inflation often shows what is happening behind the scenes before the full impact reaches consumers.
Bank of America sees inflation pressure building
The Consumer Price Index (CPI) rose 0.5% in May, according to the Bureau of Labor Statistics. Over the last 12 months, consumer prices increased 4.2%.
Energy was a major driver. The energy index rose 3.9% in May, accounting for more than 60% of the monthly increase in overall consumer prices.
Gasoline rose 7% for the month and 40.5% from a year earlier.
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Food prices also continued to move higher. The food index rose 0.2% in May and 3.1% over the last year.
What does that mean? Nearly every major sector of the economy that directly impacts consumers, from gas and energy to food, saw higher prices in May. And it is no surprise, given the geopolitical events.
On its own, that report gave consumers little reason to feel relief.
But the bigger concern for Wall Street came the next day, when the Producer Price Index (PPI) showed business costs rising more sharply.
In a note shared with TheStreet, Bank of America analyst Stephen Juneau said the CPI report was broadly in line with its expectations, with core inflation cooling to 0.2% month over month.
But the firm also warned investors to look beyond the headline CPI number and focus on what the data could mean for the Federal Reserve’s preferred inflation measure.
After the CPI report, BofA raised its core PCE (Personal Consumption Expenditures) tracking estimate to 0.27% month over month, or 3.3% year over year.
Then came the PPI report.
Producer prices jump before consumers feel impact
The Producer Price Index for final demand rose 1.1% in May, according to the Bureau of Labor Statistics.
From a year earlier, producer prices rose 6.5%, the largest 12-month increase since November 2022.
- Goods prices rose 2.8% in May.
- Energy prices jumped 10.7%.
- Gasoline prices at the producer level rose 23.4%.
Those numbers matter because they show businesses are facing higher costs in areas that can touch consumers directly or indirectly:
- Fuel costs can raise transportation expenses.
- Freight costs can affect retailers.
- Higher goods costs can put pressure on store margins.
- Food and energy costs can make it harder for restaurants and grocers to keep prices steady.
BofA said the PPI components that feed into PCE inflation were “hot” in May, with portfolio management and health care also adding pressure.
And after the PPI report, the firm raised its core PCE tracking estimate again to 0.35% month over month from 0.27%.
It said this increase could push annual core PCE inflation to 3.4%, up from the earlier estimate of 3.3%.
PCE is the inflation gauge the Federal Reserve watches closely when deciding whether to change interest rates.
And if the official PCE report confirms that inflation remains high, it could make it harder for the Federal Reserve to cut interest rates.
Retailers face a difficult choice
The risk for consumers is not that every producer price increase is immediately reflected in a higher shelf price.
Companies do not always pass costs along right away. Some absorb higher expenses or offer fewer discounts, but some raise fees, and others wait to see whether the cost pressure lasts.
But rising producer prices make that decision harder.
Retailers have spent the last two years trying to protect price-sensitive shoppers while also defending their own margins.
That balancing act becomes more difficult when energy, freight, food, and goods costs all rise simultaneously.
In a recent earnings report covered by TheStreet, Walmart executives said the company has tried to shield shoppers from higher costs, but warned that continued cost pressure could eventually force some prices higher.
That is why the latest inflation data matters even for shoppers who do not follow PPI or PCE, because it tells whether they will be at the receiving end of rising business costs.
Fed pressure adds another problem
BofA said the inflation picture keeps the Federal Reserve firmly on hold.
If the Fed stays cautious for longer, borrowing costs may also remain elevated. That affects credit cards, auto loans, mortgages, and other household expenses.
In other words, consumers could face pressure from both sides: higher everyday prices and higher borrowing costs.
BofA also pointed to energy as a key risk. A lower risk of an energy shock would help ease inflation concerns, but oil and fuel costs remain important for businesses and households.
For now, the latest data suggests the inflation fight is not over.
Consumers may not see producer prices on a receipt. But if business costs keep rising, the next hit could still reach shoppers.
Related: Costco drops gas prices slower than Walmart and Kroger
