Wholesale prices surged by 0.5% in April, surpassing initial expectations.

In April, the producer price index (PPI), which gauges what producers earn for their produced goods, rose by 0.5%, marking a 2.2% increase over the previous 12 months, the largest surge in a year. Additionally, the core PPI, excluding volatile food and energy prices, also rose by 0.5%, surpassing the Dow Jones estimate of 0.2%. The increase in services prices notably contributed to the overall wholesale inflation, with a 0.6% rise, responsible for approximately three-quarters of the headline gain.

Wholesale prices in April surged beyond expectations, posing a potential obstacle to imminent interest rate reductions.

The producer price index (PPI), reflecting what producers earn for their goods, rose by 0.5% for the month, exceeding the 0.3% estimate by Dow Jones, as reported by the Labor Department's Bureau of Labor Statistics on Tuesday. However, the March figure was revised from an initially reported gain of 0.2% to a decline of 0.1%.

Excluding the influence of fluctuating food and energy costs, the core producer price index (PPI) also climbed by 0.5%, surpassing the Dow Jones estimate of 0.2%. When excluding trade services from this core category, there was a 0.4% increase for the month and a 3.1% rise over the past 12 months, marking the highest level since April 2023.

Year-over-year, wholesale inflation increased by 2.2%, marking the highest level in a year. Core PPI inflation stood at 2.4%, representing the most significant annual rise since August 2023. These figures aligned with estimates from Reuters.

Following the release of this data, stock market futures hovered around breakeven, while Treasury yields exhibited mixed movements.

"Sticky inflation appeared firmly entrenched this morning following a considerably hotter-than-anticipated inflation report. However, with last month's figures revised downward, this report may not have delivered as much of an upside shock as initially perceived," noted Chris Larkin, managing director of trading and investing for E-Trade at Morgan Stanley.

Services prices drove the wholesale inflation reading, increasing by 0.6% and contributing to approximately three-quarters of the headline gain. Meanwhile, the final demand goods index rose by 0.4%. According to the BLS, the services hike marked the most significant monthly increase since July 2023, with portfolio management playing a significant role in driving service costs, which surged by 3.9% over the month.

Goods prices, as measured by the PPI, saw a 0.4% rise, reversing a previous 0.2% decline. This increase was fueled by a 2% rise in the energy index, driven by a notable 5.4% surge in gasoline prices. However, the final demand index for food experienced a 0.7% decline.

The most recent inflation figures arrive at a time when the Federal Reserve has maintained an extended pause on interest rates. Policymakers have indicated in recent statements that they anticipate inflation to moderate as the year progresses but require more evidence that it is convincingly moving back toward the central bank's 2% target before considering rate cuts.

Recent data releases have been less than encouraging. The consumer price index (CPI), which complements the PPI by measuring what consumers pay rather than what producers receive, has exhibited higher-than-anticipated increases in the early months of 2024. This has heightened concerns that inflation may be more persistent than initially anticipated by economists and policymakers.

Likewise, the Federal Reserve's favored gauge, the Commerce Department's personal consumption expenditures price index, has been indicating heightened inflation, hovering just below the 3% mark.

Across the board, various inflation metrics are demonstrating significant price pressures, well surpassing the Fed's target.

Furthermore, multiple consumer surveys have revealed elevated expectations regarding inflation. The New York Fed's monthly survey, published on Monday, depicted a one-year inflation outlook at 3.3%, the highest level since November. This surge is largely attributed to anticipations of continued increases in housing-related expenses.

Source: CNBC‍