Producer prices jumped more than expected in April, signaling potential inflationary pressures in the economy. The Producer Price Index (PPI) for final demand rose 0.5% in April, a sharp increase from the 0.1% decline in March and the second biggest jump in the past eight months, according to the latest data from the Bureau of Labor Statistics.
Why it matters: Economists had anticipated a 0.3% rise for April, making the actual 0.5% increase a significant surprise. This uptick could influence inflationary expectations and monetary policy decisions.
By the numbers:
- Year-over-year index: The annual PPI rose as expected to 2.2% in April, up from 1.8% in March. This marks the highest level since April 2023.
- Services and goods: Nearly three-quarters of the April advance is due to a 0.6% increase in the index for final demand services. Prices for final demand goods moved up 0.4%.
- Core prices: Excluding food and energy, core PPI rose 0.5% in April, following a 0.1% decline in March. Year-over-year, core PPI rose to 2.4% in April, up from 2.1% in March and the highest level since August 2023.
Driving the news:
- Services: A 3.9% surge in the index for portfolio management significantly contributed to the increase in final demand services.
- Goods: The index for final demand energy, which moved up 2.0%, was a major factor driving the increase in final demand goods.
What they’re saying: Economists are closely monitoring these figures as they could signal underlying inflationary pressures. The unexpected rise in producer prices might lead to a reevaluation of future interest rate hikes by the Federal Reserve.
The Impact on Mortgage Rates: The hotter-than-expected PPI numbers for April indicate that inflationary pressures may be stronger than previously thought despite a cooling labor market. This could reverse some of the gains we have seen in the bond market as traders move back to the idea of higher rates for longer.
