Wholesale prices jumped more than expected in April, putting up another potential roadblock to interest rate cuts anytime soon.
The producer price index, a gauge of prices received at the wholesale level, increased 0.5% for the month, higher than the 0.3% Dow Jones estimate, the Labor Department’s Bureau of Labor Statistics reported Tuesday. However, the March reading was revised from an initially reported 0.2% gain to a decline of 0.1%.
Stripping out volatile food and energy prices, the core PPI also rose 0.5% compared with the 0.2% Dow Jones estimate. Excluding trade services from that core group showed a 0.4% increase on the month and 3.1% on a 12-month basis, the highest level since April 2023.
On a year-over-year basis, wholesale inflation rose 2.2%, also the highest in a year. The core PPI inflation was at 2.4%, the biggest annual move since August 2023. Both numbers were in line with estimates from Reuters.
Stock market futures were around breakeven following the data while Treasury yields were mixed.
“Sticky inflation looked downright stuck this morning after a much hotter-than-expected inflation reading. But with last month’s numbers revised lower, this report may not have been as much of an upside shock as it first appeared to be,” said Chris Larkin, managing director of trading and investing for E-Trade from Morgan Stanley.
Services prices boosted the wholesale inflation reading, rising 0.6% and accounting for about three-quarters of the headline gain, while the final demand goods index increased 0.4%. The services increase was the biggest monthly gain since July 2023, the BLS reported.
Despite the seemingly hotter inflation reading, Federal Reserve Chair Jerome Powell called the report “actually quite mixed.”
“The headline numbers were higher, but they were backward revisions,” Powell told a bankers group in Amsterdam. “We’re, of course, disassembling it taking it apart and looking at it.”
Portfolio management helped drive the services costs, rising 3.9% on the month.
Goods prices as measured by the PPI rose 0.4%, reversing a 0.2% decline, led by a 2% increase in the energy index, which included a 5.4% surge in gasoline prices. The final demand index for food fell 0.7%.
The latest inflation data comes with the Federal Reserve on extended hold regarding interest rates. Policymakers have said in recent days that they expect inflation to trend lower through the year but need more evidence that it is convincingly on the way back to the central bank’s 2% goal before cutting rates.
Recent data points have not been encouraging.
The consumer price index, the companion to the PPI that measures what consumers pay rather than what producers receive, has had higher-than-expected gains through the first part of 2024, fueling fears that inflation is stickier than economists and policymakers had expected.
Similarly, the Fed’s preferred measure, the Commerce Department’s personal consumption expenditures price index, also has been running hot and showing inflation running just shy of 3%.
All of the various inflation measures are showing price pressures well ahead of the Fed’s target.
In addition, various consumer surveys have shown expectations running hot. The New York Fed’s monthly survey released Monday showed the one-year inflation outlook at 3.3%, the highest since November, pushed in good part by expectations that housing-related costs will continue to increase.
