Wholesale prices rose 1.4% in April, the largest monthly increase since a 1.7% jump in the pandemic-ridden days of March 2022, the U.S. Bureau of Labor Statistics reported Wednesday. On a year-over-year basis, the Producer Price Index rose 6.0%, the largest annual surge since a 6.4% rise in December 2022.
The results were well above expectations, with the monthly number running twice as high as the 0.7% rate recorded in March.
The PPI, which measures prices recorded by domestic producers for their output, is seen as a leading indicator of inflation, and the April results suggest that there is a lot more inflationary pressure in the pipeline that can be expected to show up in retail prices in the coming months.
The surging cost of energy was the prime driver of producer price increases, just as it was for the big jump in consumer prices in April that we told you about yesterday. The producer index reflects a wider array of goods and services than the consumer index, and today’s results indicate that higher energy prices are spreading throughout the economy as companies move to pass on higher costs for all kinds of products, ranging from plastics and car tires to processed foods and toothpaste.
What the analysts are saying: The “report suggests that while the move higher in prices received by producers is primarily being driven by energy, we are also seeing a broader increase across other core components of the inflation basket,” financial analyst Richard de Chazal of William Blair wrote in a research note, per Axios.
Nationwide senior economist Ben Ayers said he expects the inflationary surge to continue, with consumer inflation rising to 4% as soon as next month. “The jump in input prices portends further increases for consumer prices in May,” he wrote in a research note cited by CNN.
What it means for the Fed: The Senate voted Wednesday to confirm Kevin Warsh as the new chair of the Federal Reserve. The latest price index data suggests that he will have his hands full dealing with rising inflation.
“This report will set off alarm bells at the Fed and add fuel to the political conversation about affordability,” said Carl Weinberg, chief economist at High Frequency Economics, per the Associated Press. “The results are so far above expectations that this update will set off alarm bells in the financial markets, too.”
That could be a difficult situation for Warsh, who was nominated to the post by a president who has demanded rate cuts by the central bank — and who was confirmed as Fed chair today by the narrowest margin on record in a 54-45 vote, due in part to fears that he will be too deferential to President Trump’s demands. Although cutting the Fed’s benchmark interest rate seems unlikely at this point, given the recent inflation data, if Warsh seeks to do so in the near future, he may have difficulty convincing his fellow board members to go along.
Boston Fed President Susan Collins said Wednesday that while she thinks the underlying inflation trend is still downward, as it was before Trump’s tariffs and war against Iran, there is a growing chance that the fundamentals may change. The probability of a return to the downward trend once the war ends “has declined,” she told The Wall Street Journal, “and some of the other scenarios are less benign than that and certainly could feature higher, more persistent inflation.”
Although it’s still not her leading expectation, Collins said the central bank may need to raise interest rates if the inflationary surge broadens in the coming months.