PPI Report Shows Sticky Inflation. Why That Is Bad News for the CPI Print.


  • The April Producer Price Index (PPI) climbed 0.5% in April, up 2.2% annually.
  • This is notably above forecasts of a 0.3% increase and March’s 1.8% PPI reading.
  • Inflation data suggests that consumer prices, which tend to follow wholesale prices, will only continue to climb or remain elevated despite restrictive interest rates.
PPI report - PPI Report Shows Sticky Inflation. Why That Is Bad News for the CPI Print.

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The April Producer Price Index (PPI) report came in hot this morning, showing wholesale prices climbed faster than projected last month. This only adds pressure to the Consumer Price Index (CPI) inflation report due later this week.

The PPI, which gauges changes in manufacturer costs to suppliers, increased 2.2% on a yearly basis, up from March’s revised 1.8% inflation reading, the highest level since April 2023. Prices jumped 0.5% month-over-month, a notable reversal from March’s 0.1% decrease.

The “core” PPI, which excludes the volatile food and energy categories, also surprised economists by accelerating to 3.1% annually, increasing 0.4% in April. This is above forecasts of 0.2% growth, which was also March’s core reading.

“Sticky inflation looked downright stuck this morning after a much hotter-than-expected inflation reading. But with last month’s numbers revised lower, this report may not have been as much of an upside shock as it first appeared to be,” said Chris Larkin, Managing Director, Head of Trading and Investing at E-Trade from Morgan Stanley.

Red-Hot PPI Report Points to Continued Inflation Struggles

With concerns already mounting over stubborn inflation, today’s PPI data only strengthens the higher-for-longer narrative regarding interest rates.

Indeed, despite early promises of three rate cuts in 2024, the Federal Reserve has remained steadfast in its commitment to lowering inflation. With inflation refusing to budge, the Fed has yet to cut rates and, as long as prices stay elevated, that may not change this year.

As manufacturers pay more for inputs, businesses will tend to pass over these higher costs to consumers by raising the prices of goods. Because of this, the PPI offers some insight into the trend for consumer prices. Which, unfortunately, points to inflation remaining at its elevated level — or even climbing.

“Today’s PPI is a bad omen for tomorrow’s CPI number – despite the relationship between the two being somewhat complicated – and if the market is spooked by today’s higher-than-expected PPI number, then it will be even more disturbed by a higher-than-expected CPI number tomorrow,” said Independent Advisor Alliance Chief Investment Officer Chris Zaccarelli.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.

Article printed from InvestorPlace Media, https://investorplace.com/2024/05/ppi-report-shows-sticky-inflation-why-that-is-bad-news-for-the-cpi-print/.

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