Wholesale prices rose more than expected in April, setting up another potential obstacle to a near-term interest rate cut.
The U.S. Department of Labor’s Bureau of Labor Statistics reported on Tuesday that the producer price index, which measures wholesale prices, rose 0.5% this month, above Dow Jones’ estimate of 0.3%. However, March’s data was revised to a decline of 0.1% from an initially reported growth of 0.2%.
Excluding volatile food and energy prices, core PPI also rose 0.5%, compared with the Dow Jones forecast of 0.2%. Trade services, excluding that core group, rose 0.4% for the month and 3.1% in the 12 months, the highest level since April 2023.
Wholesale inflation increased by 2.2% annually, the highest level in a year. Core PPI inflation was 2.4%, the largest annual increase since August 2023.
After the data was released, stock market futures were trading near breakeven, while Treasury yields were mixed.
Chris Larkin said: “Sticky inflation looks completely in trouble this morning after inflation data came in well above expectations. But with lower revisions to last month’s data, this report may not look like it. It initially looked like that would have an upside impact.
Services prices pushed up the wholesale inflation data, rising 0.6%, accounting for about three-quarters of the overall increase, while the index for final demand goods rose 0.4%. According to the Bureau of Labor Statistics, the growth in services was the largest monthly gain since July 2023.
Portfolio management drove service cost growth, rising 3.9% for the month.
Prices of goods measured by the PPI rose 0.4%, reversing a 0.2% decline, and the energy index rose 2%, with gasoline prices rising 5.4%. The food final demand index fell by 0.7%.
The latest inflation data came as the Federal Reserve kept interest rates on hold. Policymakers have said in recent days that they expect inflation to trend downward this year but need more evidence that inflation is convincingly returning to the 2% target before the central bank cut interest rates.
Recent data points are not encouraging.
The Consumer Price Index, a companion measure to the Producer Price Index (PPI) that measures what consumers pay rather than what producers receive, rose more than expected in the first half of 2024, raising questions about Inflation is a bigger concern than economists and policymakers expected.
Likewise, the Commerce Department’s personal consumption expenditures price index, the Fed’s preferred indicator, has been strong, showing inflation just below 3%.
All various inflation indicators point to price pressures well above the Fed’s target.
Additionally, various consumer surveys show that consumer expectations are high. The New York Federal Reserve’s monthly survey released on Monday showed the one-year inflation outlook at 3.3%, the highest level since November, driven in large part by expectations that housing-related costs will continue to increase.
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