US wholesale inflation just hit its highest rate in a year

Americans already contending with persistent and stubbornly high inflation just got more unwelcome news on Tuesday: There are more price hikes likely coming down the pike.

Wholesale inflation picked up in April to its highest rate in a year, according to Bureau of Labor Statistics data released Tuesday.

The Producer Price Index, which measures the change in prices that manufacturers pay to suppliers, was 2.2% for the 12 months ended in April, according to Bureau of Labor Statistics data released Tuesday.

That gain is higher than what was seen in March, which was downwardly revised from 2.1% to 1.8%.

On a monthly basis, prices rose 0.5%, a faster pace than March’s 0.1% loss (also downwardly revised) and ran much hotter than what economists had anticipated. Economists were expecting a monthly gain of 0.3%, according to FactSet consensus estimates.

“The concern here is that we now have a trend, an upward trend in producer prices, which can only be passed through to consumers and result in upward pressure on consumer price inflation over the coming months,” Kurt Rankin, senior economist for the PNC Financial Services Group, told CNN in an interview.

And that means interest rates will stay higher for longer and could further delay the Federal Reserve’s plans for cuts on that front, he said.

On Tuesday, Fed Chair Jerome Powell said readings like the April PPI provide more justification to keep rates elevated for a longer period of time. But it does not necessarily mean the central bank will need to raise interest rates, Powell said while speaking at a Foreign Bankers Association event alongside European Central Bank Governing Council member Klaas Knot.

Sticky, stubborn services inflation

While higher energy costs (up 2% in April) helped to push goods prices higher, services inflation is what drove up the overall PPI last month. Nearly three-quarters of the April monthly gain was attributable to price hikes seen by producers of services, according to the report.

Services providers saw a 0.6% increase in prices for the month, the fastest pace seen for that category since March 2022, Rankin noted.

“Services has been the issue over the past year as consumers continue to spend money, and costs for services-oriented businesses is still stronger than goods inflation; but goods producer prices are now also rising after having fallen through most of 2023,” he said.

PPI captures average price shifts before they reach consumers and serves as a potential bellwether for retail-level inflation in the months ahead.

Although there was a welcome drop in food prices, which were down 0.7% for the month, April’s data shows that activity upstream is looking quite a bit choppy.

Even when excluding the volatile components of food and energy, “core” PPI accelerated instead of slowing as economists had anticipated.

The core index was up 2.4% for the 12 months ended in April — the highest annual rate since August of last year.

On a monthly basis, core shot up 0.5% — well above estimates for a 0.2% increase. March’s core PPI was revised down to show that prices fell 0.1% from March and rose 2.1% annually.

“Today’s PPI number means inflation through June, July, August, is going to continue to have supply side pressure” on businesses that deal more directly with consumers, Rankin said. “Now those same businesses have their own costs to pass onto consumers, which compounds with continued strong consumer demand.”

The latest wholesale data is landing a day before an even more critical read on the state of inflation in the US: The Consumer Price Index for April will be released Wednesday morning.