US producer prices rise more than forecast in sign of persistent inflation
PRICES paid to US producers rose at a solid pace in April, signalling that elevated consumer inflation could persist for longer than expected, keeping the Federal Reserve geared towards aggressive rate hikes.
The producer price index (PPI) for final demand increased 11 per cent from April of last year and 0.5 per cent from the prior month, driven by goods, Labor Department data showed on Thursday (May 12). That followed sizable upward revisions to the March figures.
Excluding the volatile food and energy components, the so-called core PPI increased 0.4 per cent from a month earlier and was up 8.8 per cent from a year ago. While that measure rose at a softer-than-expected monthly pace, March was revised up to a 1.2 per cent advance.
The median forecasts in a Bloomberg survey of economists called for a 10.7 per cent year-over-year increase for the overall PPI and a 0.5 per cent monthly advance.
The data, while moderating somewhat from March, suggest persistent inflation in the production pipeline will continue to filter through to consumer prices, which also slowed from the prior month. Producers are likely to continue facing higher costs as Russia’s war in Ukraine and Covid-related lockdowns in China further strain supply chains, adding to the probability they will pass those expenses onto consumers.
Fed officials raised rates by the most since 2000 last week in their strongest move yet to tamp down price pressures, but such global headwinds are putting the central bank’s 2 per cent inflation goal increasingly out of reach. Chair Jerome Powell and his colleagues have signalled that they are open to several half-point increases in their benchmark rate in the months ahead.
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“The Fed will want to see clearer evidence that inflation is cooling and higher interest rates are slowing demand before they start thinking about the endpoint of the current rate hike cycle,” Bill Adams, chief economist at Comerica Bank, said in a note.
The S&P 500 opened lower while Treasuries climbed.
Prices of goods climbed 1.3 per cent in April, including gains in categories like motor vehicles, diesel fuel and eggs. While services inflation was flat, prices for truck transportation of freight rose.
Energy, which spiked last month following Russia’s invasion of Ukraine, moderated in April, rising 1.7 per cent compared to 6.4 per cent in March.
Producer prices excluding food, energy, and trade services — which strips out the most volatile components of the index — rose 0.6 per cent from March, and 6.9 per cent from a year ago.
Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, increased 2.2 per cent from a month earlier.
Economists look to some categories in the PPI report to gauge the impact on the personal consumption expenditures (PCE) price index, which the Fed uses as its preferred inflation metric.
The PPI report showed some softening in healthcare services including hospital care, which could signal weaker core PCE compared to core CPI, according to Neil Dutta, head of US economic research at Renaissance Macro Research.
Separate data on Thursday showed initial claims for state jobless benefits crept up by 1,000 to 203,000 last week, consistent with a solid labour market. Continuing claims dropped to the lowest level since 1970. BLOOMBERG
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