Wholesale prices jumped more than expected in April, setting up another potential barrier to rate cuts any time soon.
The Labor Department's Bureau of Labor Statistics reported Tuesday that the producer price index, a measure of prices at the wholesale level, rose 0.5% during the month, higher than the Dow Jones estimate of 0.3%. However, the March reading was revised from an initially reported rise of 0.2% to a decline of 0.1%.
Excluding volatile food and energy prices, the core Producer Price Index also rose 0.5% compared to the Dow Jones estimate of 0.2%. Excluding commercial services from that core group showed an increase of 0.4% month-on-month and 3.1% on a 12-month basis, the highest level since April 2023.
On an annual basis, wholesale inflation rose by 2.2%, also the highest level in a year. Core PPI inflation was 2.4%, the largest annual move since August 2023. Both figures were in line with Reuters estimates.
Stock market futures were around breakeven after the data while Treasury yields were mixed.
“Flat inflation looked quite stuck this morning after a hotter than expected inflation reading. But with last month's numbers revised lower, this report may not have been quite the bullish shock it first appeared,” Chris Larkin said. , managing director of e-commerce trading and investing from Morgan Stanley.
Services prices boosted the wholesale inflation reading, rising by 0.6% to represent about three-quarters of the headline gain, while the final demand index for goods rose by 0.4%. The increase in services was the largest monthly gain since July 2023, the Bureau of Labor Statistics reported.
Portfolio management helped raise service costs, which rose by 3.9% on a monthly basis.
Commodity prices as measured by the producer price index rose 0.4%, reflecting a 0.2% decline, led by a 2% increase in the energy index, which included a 5.4% rise in gasoline prices. The final food demand index decreased by 0.7%.
The latest inflation data comes as the Federal Reserve takes a long hold on interest rates. Policymakers have said in recent days that they expect inflation to trend lower over the year but need more evidence that it is on the way back to the central bank's 2% target before it cuts interest rates.
The latest data points have not been encouraging.
The Consumer Price Index, an accompanying producer price index that measures what consumers pay rather than what producers receive, posted higher-than-expected gains during the first part of 2024, raising concerns that inflation is more persistent than economists and policymakers expected.
Likewise, the Fed's preferred measure, the Commerce Department's Personal Consumption Expenditures Price Index, was also hot and showed inflation nearing 3%.
Various measures of inflation all show price pressures well before the Fed's target.
In addition, various consumer surveys have shown rising expectations. The Federal Reserve Bank of New York's monthly survey on Monday showed one-year inflation expectations at 3.3%, the highest level since November, driven largely by expectations that housing-related costs will continue to increase.
