Producer prices dropped sharply in April, posting their steepest monthly decline in more than four years, according to new data released by the Bureau of Labor Statistics on Wednesday.
- M-O-M: The Producer Price Index (PPI) for final demand fell 0.5% for the month, a major swing from March’s flat reading and the biggest drop since April 2020, during the early days of the COVID-19 pandemic.
- Y-O-Y: The annual index rose just 2.4%, down from 3.4% in March, marking the lowest annual gain since September 2024.
The Core: Stripping out volatile food, energy, and trade components, core PPI fell 0.4% in April—a reversal from the 0.4% increase in March and the largest monthly decline on record.
Service Drop: The plunge was driven almost entirely by weakening demand for services. Final demand services prices declined by 0.7%, while final demand goods were flat for the month following a 0.9% decline in March. More than two-thirds of the drop in services stemmed from trade margins, which tumbled 1.6%.
- Goods were flat thanks to particularly sharp 6.1% decline in margins for machinery and vehicle wholesaling alone accounted for over 40% of the total decrease in service prices.
Bonds Shrug: Despite the significant easing in wholesale inflation, the bond market remained largely unmoved. The 10-year Treasury yield ticked down just one basis point following the report, suggesting that investors remain cautious about the broader inflation picture and are awaiting further confirmation from upcoming consumer and labor market data.
Impact on Rates: The sharp drop in producer prices could provide some relief to those worried about rising prices. However, the Fed may need to see more consistent disinflation across both consumer and wholesale measures before considering a pivot toward rate cuts.
