Producer prices climbed the most in two years, the BLS said.
Expectations were for things to have slowed significantly in April. That didn’t happen:
- PPI final demand month-over-month: 0.6% (0.2% expected; March: 0.5%)
- PPI ex-food and energy: 0.5% (0.2% expected; March: 0.6%)
- PPI final demand year-over-year: 2.1% (1.7% expected; March: 1.4%)
- PPI ex-food and energy year-over-year: 1.9% (1.4% expected; March: 1.4%)
Capital Economics’ Paul Dales says this could be the real thing: expansion.
…while March’s rise was a rebound from the 0.3% m/m fall in February triggered by the bad weather, April’s gain seems to be more genuine. Two-thirds of it was due to an increase in the margins of wholesalers of machinery and equipment, which may be a result of a cyclical pick-up in demand for capital goods.
At face value, the increase in core total finished goods PPI inflation to 2.0%, from 1.6% in March, suggests that core CPI inflation will rise from 1.7% in March to around 2.0% within a matter of month. Although we don’t expect this rise to happen so soon, we are expecting the stronger economic recovery and rising wage growth to push core CPI inflation above 2% next year.
Food prices surged the most since 2011, but Pantheon’s Ian Shepherdson argues the jump in should be ignored, and we should instead be focusing on services profit margins:
One jump in the core PPI can be dismissed; two are interesting. The story here is all about the services sector, where prices rose 0.6%, after a 0.7% March gain. The damage is in the final demand trade services component, which is a measure of retail and wholesale profit margins. Both March and April saw hefty 1.4% increases, but the numbers are volatile – they fell by a total of 2.4% over the previous three months – so we can’t yet say an upward trend is emerging. PPI margins are quite closely correlated with the NFIB selling price expectations index, which has risen sharply; we expected big PPI gains today on the back of the NFIB. Further sustained gains would spell trouble ahead. Core goods prices, meanwhile, are no threat.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.