Wholesale inflation unexpectedly jumps again to highest level in a year

Inflation at the wholesale level rose much more than expected in April, the latest sign that price pressures within the economy remain elevated and difficult to tame.

The Labor Department said Tuesday that its producer price index, which measures inflation at the wholesale level before it reaches consumers, rose 0.5% in April from the previous month. On an annual basis, prices remain up 2.2% – the highest level since April 2023.

While the monthly gain is notably higher than the 0.3% increase forecast by LSEG economists, the headline figure is in line with expectations.

In another sign that points to the stickiness of high inflation, core prices – which exclude the more volatile measurements of food and energy – rose 0.5% for the month. That is higher than both the 0.2% estimate and the gain recorded the previous month.

The figure was up 2.4% on a 12-month basis, in line with expectations.

"Sticky inflation looked downright stuck this morning after a much hotter-than-expected inflation reading," said Chris Larkin, managing director of trading and investing at E*Trade. "But with last month’s numbers revised lower, this report may not have been as much of an upside shock as it first appeared to be."

High inflation has created severe financial pressures for most U.S. households, which are forced to pay more for basics like rent, groceries and gasoline. Price hikes are particularly devastating for lower-income Americans, because they tend to spend more of their already-stretched paycheck on necessities and therefore have less flexibility to save money.

The data comes one day before the Labor Department will release the more closely watched consumer price index (CPI), which measures the prices paid directly by consumers. That report is expected to show inflation rose 0.4% in April from the previous month and climbed 3.4% from the same time last year.

Both releases are considered to be important measurements of inflation, with the PPI believed to be a leading indicator of inflationary pressures as costs work their way down to consumers. 

The different gauges point to inflation that is still running above the Federal Reserve's preferred 2% target.

The Fed has signaled it is closely watching the inflation reports this week after an increase in price growth during the first quarter of the year forced policymakers to hold interest rates at a 23-year high.

Central bank officials have signaled they expect to cut interest rates this year, but indicated they will not do so until they are confident that inflation is conquered.

"If the CPI also comes in above expectations, the interest rate picture may be thrown into doubt," Larkin said. "In late 2023, some investors thought the Fed would start lowering interest rates in March, and get in six or seven cuts in by the end of this year. More hot inflation data could make the debate about whether 2024 will contain even a single cut."

Stock futures fell in early trading following the hotter-than-expected data.