CNN
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Americans, already struggling with persistent and stubbornly high inflation, received even more unwelcome news on Tuesday: Further price hikes are likely.
Wholesale inflation rose in April to its highest rate in a year, according to Bureau of Labor Statistics data released Tuesday.
The producer price index, which measures the change in prices that manufacturers pay to suppliers, was 2.2% for the 12 months ended in April, according to Bureau of Labor Statistics data released Tuesday.
This gain is higher than what was seen in Marchwhich was revised downward from 2.1% to 1.8%.
On a monthly basis, prices rose 0.5%, a faster pace than March's 0.1% loss (also revised downward) and were much higher than economists had expected. Economists had expected a monthly gain of 0.3%, according to FactSet consensus estimates.
“The problem here is that we now have a trend, an upward trend in producer prices, which can only be passed on to consumers and lead to upward pressure on consumer price inflation over the months,” said Kurt Rankin, PNC senior economist. Financial Services Group, told CNN in an interview.
That means interest rates will stay high for longer and could further delay the Federal Reserve's tapering plans in this area, he said.
On Tuesday, Fed Chair Jerome Powell said numbers like April's PPI provide further justification for keeping rates high for a longer period of time. But that doesn't necessarily mean the central bank will have to raise interest rates, Powell said during a speech at a Foreign Bankers Association event alongside Klaas Knot, a member of the Board of Governors of the European Central Bank.
While rising energy costs (up 2% in April) helped push up goods prices, it was services inflation that pushed the headline PPI higher last month. Nearly three-quarters of the monthly increase in April is attributable to price increases noted by service producers, according to the report.
Service providers saw their prices rise 0.6% for the month, the fastest pace seen for this category since March 2022, Rankin noted.
“Services have been the problem over the past year as consumers continue to spend money and costs for service-oriented businesses are still higher than goods inflation; “but producer prices of goods are also rising after falling for most of 2023,” he said.
The PPI captures changes in average prices before they reach consumers and serves as a potential indicator of inflation at the retail level in the coming months.
Even though food prices fell 0.7% over the month, April data shows that upstream activity appears somewhat unstable.
Even excluding the volatile food and energy components, the “core” PPI accelerated instead of slowing as economists had predicted.
The core index rose 2.4% for the 12 months ended April – the highest annual rate since August last year.
On a monthly basis, the core rose 0.5%, well above estimates of a 0.2% increase. The March core PPI was revised downward to show that prices fell 0.1% from March and rose 2.1% annually.
“Today's PPI number means that inflation through June, July and August is going to continue to put supply-side pressure” on companies that deal more directly with consumers, Rankin said. “Now these same companies have their own costs to pass on to consumers, adding to continued strong consumer demand.”
The latest wholesale data comes a day before an even more critical reading on the state of U.S. inflation: The April consumer price index will be published Wednesday morning.