The producer price index increased by 0.5% in April, above estimates, as both goods and services prices accelerated, according to Bureau of Labor Statistics data released on Tuesday.
The increase, however, was offset by a downward revision to March’s number, from a 0.2% increase to a 0.1% decline. That revision helped push the year-over-year inflation rate observed by domestic producers to 2.2% from 1.8% last month.
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The index did not hint at any significant easing of underlying inflation in April, which will be much clearer once the consumer price index data is released on Wednesday and the Federal Reserve’s key inflation metric, the personal consumption expenditures index, is released at the end of the month.
Unlike the other two metrics of inflation, the producer price index does not include rent and imported goods prices. It is more similar to the super core metric of inflation within the CPI and PCE reports.
On the other hand, there are several components, which feed into the CPI and PCE reports, that showed much-needed relief in April.
Food prices, an important component, fell by 0.7% on the month. Transportation services of passengers, a sticky component recently, dropped by a sharp 3.7% on the month.
Together, the overall mixed data did not give a clear indication of the direction of either the CPI or PCE metric. But if one zooms out and looks at the broader picture, long-term PPI has continued to stay grounded compared to the pre-pandemic level.
Unlike the other two metrics, producer price inflation has been normalized.
The takeaway
That is an important reason why we think CPI and PCE inflation will show more of the disinflation trend despite the rebound in the first quarter, once the housing component drops around the end of the summer.
Inside the data, final demand prices for trade services, which is a proxy for retail and wholesale margins, rose by 0.8% after dropping by 1% earlier, mostly driven by trade of private capital equipment. Input prices also rose faster on the month, with all stages of intermediate demand showing increases.
