Wholesale prices in April recorded the highest annual rise in more than three years, suggesting inflation will worsen as pipeline costs soar.
The producer price index rose a seasonally adjusted 1.4% for the month, well above the Dow Jones consensus estimate for a 0.5% rise and an upwardly revised 0.7% rise in March, the Bureau of Labor Statistics said Wednesday. This was the largest monthly increase since March 2022.
On an annual basis, the index rose 6%, the largest increase since December 2022.
Core PPI, which excludes food and energy, accelerated by 1% compared to the expected 0.4%. PPI, which excludes food, energy and trade services, rose 0.6%.
Similar to the consumer price spike the BLS reported on Tuesday, energy was at the root of the unexpectedly large rise in producer prices, but there was also evidence that price pain was spreading beyond the gas pumps.
About three-quarters of the increase in commodity prices was due to a 7.8% increase in final energy demand, according to the BLS. More than 40% of that was due to a 15.6% jump in gasoline prices in a month that saw prices soar well above $4 a gallon as pressure from the Iran war hit the broader energy complex.
Much of the inflationary movement has been attributed to the war and President Donald Trump’s tariffs introduced a year ago, but PPI data shows price pressures were widespread.
The services index rose 1.2%, the largest monthly increase since March 2022. Two-thirds of the increase was due to a 2.7% rise in trade services, indicating that tariff costs may be starting to have a significant impact on prices. The move was also supported by a 3.5% increase in machinery and equipment wholesale margins.
“Inflation is persistent and accelerating. This core reading confirms deeper structural trends, particularly in services,” said David Russell, global head of market strategy at TradeStation. “The Hormuz crisis is exacerbating the problem, but it’s not just about oil.”
Following this announcement, futures prices linked to the Dow Jones Industrial Average fell, but yields on U.S. Treasuries rose slightly.
The report was released a day after the BLS reported that the consumer price index rose 3.8% year over year. This is primarily due to soaring energy prices, but other factors are also at play, including the alarming rise in shelter costs.
Core inflation was more subdued at 2.8%, but still well above the Federal Reserve’s 2% target, and central bankers are likely holding off on action as the impact of the Iran war and President Trump’s tariffs unfolds.
Market prices indicate that a rate cut is unlikely this year, but the probability of a rate hike rose to about 39% following the PPI report. The Fed kept its benchmark interest rate unchanged at a range of 3.5% to 3.75% after finding that inflation was persistent and the labor market was recovering.
