Inflation Isn’t Cooling — April Producer Prices Just Hit a Three-Year High

TLDR

• U.S. producer prices jumped 1.4% in April, double the expected 0.7% rise
• Annual PPI hit 6%, the highest since December 2022
• Core PPI (ex-food & energy) rose 1% monthly and 5.2% annually, both above forecasts
• Energy costs climbed 7.8% monthly; gasoline up 15.6%, jet fuel up 36.4%
• About a third of traders now expect at least one Fed rate hike by December

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U.S. producer prices rose far more than expected in April, hitting the highest annual level in more than three years. The data adds pressure on the Federal Reserve as it approaches its next policy meeting.

The producer price index for final demand climbed 1.4% in April from the prior month. That was double the revised March gain of 0.7% and well above the 0.7% economists had forecast. On an annual basis, prices rose 6%, up from March’s revised 4.3% rate and the highest since December 2022.

The numbers came from the Bureau of Labor Statistics on Wednesday. They followed Monday’s Consumer Price Index report, which showed consumer prices up 3.8% year over year — also the largest annual rise in three years.

Services prices drove much of April’s PPI increase. The index for final demand services rose 1.2% month over month, accounting for nearly 60% of the total monthly gain. Transportation and warehousing prices jumped 5%, while trade rose 2.7%.

Margins for machinery and equipment wholesaling rose 3.5% on the month. A range of other indexes also moved higher, including truck freight, fuel retailing, and legal services.

Energy Costs Drive the Surge

Energy was a major factor in the April data. Overall energy costs rose 7.8% month over month. Gasoline prices jumped 15.6%, while jet fuel surged 36.4%. Both figures were slightly slower than March’s pace, but still reflected sharp price increases.

Final demand goods prices rose 2% on the month.

Core PPI, which strips out food and energy, rose 1% in April. That was more than three times the expected 0.3% gain and up from March’s revised 0.2%. Year over year, core producer prices rose 5.2%, above the forecast of 4.3% and March’s revised 4%.

A broader core measure that also excludes trade rose 0.6% monthly, for a 4.4% annual gain.

Federal Reserve Faces Difficult Decision

The back-to-back hot inflation readings complicate the Federal Reserve’s path forward. The Fed’s next meeting is scheduled for June 16 and 17.

Kevin Warsh is set to be confirmed as the new Fed chair around this time, adding another layer of uncertainty to policy decisions.

Roughly a third of traders now expect at least one quarter-point rate hike by the Fed’s December meeting, according to CME data. Fewer than 3% of traders expect a rate cut by year-end.

The Fed will receive one more set of CPI and PPI data before the June meeting. Those readings will likely play a key role in shaping the central bank’s next move.

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