Source: Wind

Wholesale prices in the US rose more than expected in April, which may have created another obstacle to the prospects for the Federal Reserve to cut interest rates in the near future.

The US Labor Bureau of Labor Statistics (Labor Bureau of Labor Statistics) announced on Tuesday that the Producer Price Index (PPI) rose 0.5% last month, higher than the 0.3% market forecast. PPI is a measure of how much revenue producers earn from producing goods. However, the March data was revised from an increase of 0.2% initially published to a decrease of 0.1%.

Excluding volatile food and energy prices, the core PPI also increased by 0.5%, compared to the market forecast of 0.2%. Core industries excluding trade services grew 0.4% in the same month and 3.1% month-on-month for 12 months, the highest level since April 2023.

Wholesale prices rose 2.2% year over year, also the highest level in a year. The core PPI inflation rate was 2.4%, the biggest annual increase since August 2023. Both figures are in line with Reuters estimates.

“After today's data was much higher than expected, sticky inflation appears to be back,” said Chris Larkin (Chris Larkin), managing director of trading and investing at Morgan Stanley E-Trade.

Service prices boosted wholesale inflation data, rising 0.6%, accounting for about three-quarters of the overall increase, while the final demand commodity index rose 0.4%. The US Bureau of Labor Statistics reports that service sector growth is the biggest monthly increase since July 2023.

Commodity prices as measured by PPI rose 0.4%, reversing a 0.2% decline, and the energy index rose 2%, including a 5.4% surge in gasoline prices. The final food demand index fell by 0.7%.

When the latest inflation data was released, the Federal Reserve announced the suspension of interest rate hikes. Policymakers recently said that they expect inflation to tend to decline this year, but they need more evidence that before interest rates are cut, inflation is convincingly returning to the central bank's 2% target.

The recent data isn't encouraging. The consumer price index (CPI) shows that by the first half of 2024, the increase in the consumer price index was higher than expected, which heightened concerns that inflation is stickier than economists and policy makers expected.

Similarly, the Federal Reserve's favorite indicator — the US Department of Commerce (Commerce Department) Personal Consumption Expenditure Price Index (Personal Consumption Expenditure Price Index)) — has also been rising, showing that the inflation rate is slightly below 3%.

Various inflation indicators show that price pressure far exceeds the Federal Reserve's target. Furthermore, various consumer surveys show that consumer expectations are getting higher and higher. According to a monthly survey released by the Federal Reserve Bank of New York (New York Fed) on Monday, the 1-year inflation forecast is 3.3%, the highest level since November last year. This is largely due to the market's expectation that housing-related costs will continue to rise.

Edit/evans