Wholesale prices rose 0.5% in April, more than expected

Wholesale prices rose 0.5% in April, more than expected

Wholesale prices rose more than expected in April, posing another potential obstacle to rate cuts soon.

The producer price index, a measure of prices achieved at the wholesale level, rose 0.5% for the month, above the Dow Jones estimate of 0.3%, the Labor Department’s Bureau of Labor Statistics reported Tuesday. However, the March figure was revised to a decline of 0.1% from an initially reported increase of 0.2%.

Excluding volatile food and energy prices, core PPI also rose 0.5%, compared with the Dow Jones estimate of 0.2%. Excluding trading services from this core group, there was an increase of 0.4% month-on-month and 3.1% on a 12-month basis, the highest since April 2023.

Year-on-year, wholesale inflation rose 2.2%, also the highest in a year. Core PPI inflation was 2.4%, the largest annual increase since August 2023. Both figures were in line with Reuters estimates.

Stock market futures were near breakeven, according to the data, while Treasury yields were mixed.

“Stubborn inflation appeared to be stuck this morning after inflation came in much higher than expected. However, with last month’s numbers revised downwards, this report may not have been as big of an upward shock as it initially seemed,” said Chris Larkin, managing director of trading and investing for Morgan Stanley’s E-Trade.

Services prices lifted wholesale inflation, rising 0.6% and accounting for about three-quarters of the total gain, while the final demand index for goods rose 0.4%. The increase in services was the largest monthly increase since July 2023, the BLS reported.

Portfolio management contributed to the increase in service costs, increasing 3.9% month-on-month.

Goods prices as measured by the PPI rose 0.4%, reversing a 0.2% decline, led by a 2% rise in the energy index, which included a 5.4% increase in gasoline prices. The final demand index for food fell by 0.7%.

The latest inflation data comes as the Federal Reserve is holding interest rates for longer. Policymakers have said in recent days that they expect inflation to fall over the course of the year but that they need more evidence that it is convincingly on the way back to the central bank’s 2 percent target, before they cut interest rates.

Recent data points have not been encouraging.

The consumer price index, the PPI’s companion that measures what consumers pay rather than what producers receive, posted stronger-than-expected gains in the first half of 2024, fueling fears that inflation is more stubborn than economists and policymakers expected had.

The Fed’s preferred measure, the Commerce Department’s Personal Consumption Expenditure Price Index, is also running hot, showing inflation at just under 3%.

All different measures of inflation show price pressures well above the Fed’s target.

In addition, various consumer surveys have shown that expectations are high. The New York Fed’s monthly survey released Monday showed the one-year inflation outlook at 3.3%, the highest since November, in large part due to expectations that housing costs will continue to rise.

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2024-05-14 13:37:22