The new U.S.-Iran peace agreement appears to reduce the immediate risk in the Strait of Hormuz, perhaps bringing some price relief to American households.

Experts are cautiously optimistic, because Iran and the U.S. have said they will abide by the agreement. However, experts are also not convinced this is a permanent turning point. From a strictly economic standpoint, I am looking at gas prices and how those impact most goods and services, especially given last week’s inflation report showing a significant 4.2% increase in consumer prices year over year.

But another price indicator was just released that is equally important and gives a strong indication of where prices are headed. This is the PPI, or Producer Price Index, which rose 6.5% over the year; the largest annual increase since the pandemic in late 2022.

This metric incorporates what producers charge retailers, which is intricately tied to their own costs. Transportation is a significant portion of direct costs, but the indirect impact of higher energy costs trickles throughout the production process. Hence, it’s not surprising that nearly 80% of the monthly increase in the PPI came from goods.

The way higher energy prices negatively impact producer prices is evidenced by the fact that minus food and energy, producer prices jumped 5.1% in May alone – again, the highest since the pandemic era.

As such, May’s 6.5% increase in producer prices tells me that more inflationary pressure will continue to spread in coming months to groceries, construction materials, airline fares, and many other everyday goods.

If the peace deal holds this time, it will certainly be welcome and needed for the average American, but inflationary relief may not be immediate or complete. Some costs from the conflict may linger, including higher shipping insurance costs, rerouted shipping and delayed deliveries. Businesses are usually slower to lower prices than they were to raise them, especially if uncertainty around the current crisis lingers, interest rates stay high, and/or tariffs remain in place.

All in, the May Producer Price Index shows that the war shock has already reached producers in a big way, which will ripple through to consumer prices. If peace holds, prices can slowly abate, but I don’t see them going back to pre-Iran-conflict levels.

Tatiana Bailey is executive director of the nonprofit Data-Driven Economic Strategies. Other Gazette articles, TV segments, DDES monthly economic dashboards with technical explanations, and how to sponsor their work can be found at ddestrategies.org.