| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| PPI-FD - M/M | 0.3% | 0.1% to 0.5% | 0.2% | -0.5% |
| PPI-FD - Y/Y | 2.5% | 2.4% to 2.5% | 2.3% | 2.7% |
| Ex-Food & Energy - M/M | 0.2% | 0.2% to 0.3% | 0.2% | -0.1% |
| Ex-Food & Energy - Y/Y | 3.3% | 3.2% to 3.5% | 3.2% | 3.4% |
| Ex-Food, Energy & Trade Services - M/M | 0.2% | 0.1% | ||
| Ex-Food, Energy & Trade Services - Y/Y | 3.4% | 3.6% |
Highlights
Once again, producer prices were lower than expected. April's headline index rebounded 0.2 percent after falling 0.4 percent in March, but the 12-month rate declined to 2.3 percent from 2.7 percent, the lowest level since January 2021. Both were below Econoday's consensus forecasts of 0.3 percent and 2.5 percent, respectively.
The index excluding food and energy increased 0.2 percent, as expected, on the month after being flat in March, while the 12-month was below expected at 3.2 percent. When also excluding trade services, the PPI final demand rose 0.2 percent after 0.1 percent in March, while the 12-month rate moved down to 3.4 percent, its lowest level since March 2021, from 3.7 percent.
After two months of declines, energy prices recovered 0.8 percent in April, still leaving the index 8.1 percent below its previous year level, after contracting 7.1 percent in March, confirming the downward trend since June 2022. Food prices were down 0.5 percent from March, bringing down the year-over-year rate to 2.5 percent, the lowest since January 2021.
A 0.3 percent increase in services explained 80 percent of the monthly increase in April, the largest advance since November last year, led by the services index excluding trade, transportation, and warehousing. On a 12-month basis, the services index increased 3.0 percent, up from 2.8 percent in March. The goods index was up 0.2 percent, led by energy, for a 0.8 percent year-over-year gain, the smallest since December 2020.
At the retail level, the pattern was similar, with price gains accelerating from March but slowing year-over-year to 4.9 percent from 5.0 percent, the lowest rate since April 2021. Core inflation moved down to 5.5 percent from 5.6 percent.
Today's data continue to show inflation pressures are easing on a year-over-year basis, a welcome development for the Federal Reserve. There are still reasons for the central bank to remain vigilant, starting with intensifying services inflation. Given favorable base effects, the increase in monthly rates also reminds the central bank that the fight to reign in inflation is not over, especially with Econoday Consensus Divergence Index at minus 14 indicating underperformance of the economy.
The index excluding food and energy increased 0.2 percent, as expected, on the month after being flat in March, while the 12-month was below expected at 3.2 percent. When also excluding trade services, the PPI final demand rose 0.2 percent after 0.1 percent in March, while the 12-month rate moved down to 3.4 percent, its lowest level since March 2021, from 3.7 percent.
After two months of declines, energy prices recovered 0.8 percent in April, still leaving the index 8.1 percent below its previous year level, after contracting 7.1 percent in March, confirming the downward trend since June 2022. Food prices were down 0.5 percent from March, bringing down the year-over-year rate to 2.5 percent, the lowest since January 2021.
A 0.3 percent increase in services explained 80 percent of the monthly increase in April, the largest advance since November last year, led by the services index excluding trade, transportation, and warehousing. On a 12-month basis, the services index increased 3.0 percent, up from 2.8 percent in March. The goods index was up 0.2 percent, led by energy, for a 0.8 percent year-over-year gain, the smallest since December 2020.
At the retail level, the pattern was similar, with price gains accelerating from March but slowing year-over-year to 4.9 percent from 5.0 percent, the lowest rate since April 2021. Core inflation moved down to 5.5 percent from 5.6 percent.
Today's data continue to show inflation pressures are easing on a year-over-year basis, a welcome development for the Federal Reserve. There are still reasons for the central bank to remain vigilant, starting with intensifying services inflation. Given favorable base effects, the increase in monthly rates also reminds the central bank that the fight to reign in inflation is not over, especially with Econoday Consensus Divergence Index at minus 14 indicating underperformance of the economy.
Market Consensus Before Announcement
After falling 0.5 percent in March, producer prices in April are expected to rise 0.3 percent. The annual rate in April is seen at 2.5 percent and down slightly from March's 2.7 percent. April's ex-food ex-energy rate is seen at 0.2 percent on the month and 3.3 percent on the year versus March's monthly 0.1 percent decline and plus 3.4 percent yearly rate.
Definition
The Producer Price Index (PPI) of the Bureau of Labor Statistics (BLS) is a family of indexes that measures the average change over time in the prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller. Effective with the January 2014 PPI data release in February 2014, BLS transitioned from the Stage of Processing (SOP) to the Final Demand-Intermediate Demand (FD-ID) aggregation system. The headline PPI (for Final Demand) measures price changes for goods, services, and construction sold to final demand: personal consumption, capital investment, government purchases, and exports.
Description
The PPI measures prices at the producer level before they are passed along to final consumers. A portion of the inflation at the producer level gets passed through to the consumer price index (CPI). By tracking price pressures in the pipeline, investors can anticipate inflationary consequences in coming months.
While the CPI is the price index with the most impact in setting interest rates, the PPI provides significant information earlier in the production process. As a starting point, interest rates have an"inflation premium" and components for risk factors. A lender will want the money paid back from a loan to at least have the same purchasing power as when loaned. The interest rate at a minimum equals the inflation rate to maintain purchasing power and this generally is based on the CPI. Changes in inflation lead to changes in interest rates and, in turn, in equity prices.
The PPI comes in two key main versions: final demand (FD) and intermediate demand (ID). The final demand portion is composed of six main price indexes: final demand goods; final demand trade services; final demand transportation and warehousing services; final demand services less trade, transportation, and warehousing; final demand construction; and overall final demand.
The intermediate demand portion of the FD-ID system tracks price changes for goods, services, and construction products sold to businesses as inputs to production, excluding capital investment. There are two parallel treatments of intermediate demand, each constructed from the identical set of commodity price indexes. The first treatment organizes commodities according to commodity type, and the second organizes commodities using a stage-based, production flow model.
The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to producers increase, businesses are faced with either charging higher prices or taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace.
Under the prior PPI system, the producer price index was substantially more volatile than the consumer price index because the CPI included services while the PPI did not. Volatility has been reduced substantially in the PPI-FD due to the inclusion of services but the PPI still is more volatile than the CPI. Wages are a bigger share of the costs at the retail level than at the producer level and this plays a role in the CPI’s lower volatility. Also, the PPI does not include owners’ equivalent rent—a large and slow moving component in the CPI. Food and energy prices are major sources of volatility in the PPI, hence, the greater focus on the"core PPI" which excludes these two components.
The bond market rallies when the PPI decreases or posts only small increases, but bond prices fall when the PPI posts larger-than-expected gains. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
While the CPI is the price index with the most impact in setting interest rates, the PPI provides significant information earlier in the production process. As a starting point, interest rates have an"inflation premium" and components for risk factors. A lender will want the money paid back from a loan to at least have the same purchasing power as when loaned. The interest rate at a minimum equals the inflation rate to maintain purchasing power and this generally is based on the CPI. Changes in inflation lead to changes in interest rates and, in turn, in equity prices.
The PPI comes in two key main versions: final demand (FD) and intermediate demand (ID). The final demand portion is composed of six main price indexes: final demand goods; final demand trade services; final demand transportation and warehousing services; final demand services less trade, transportation, and warehousing; final demand construction; and overall final demand.
The intermediate demand portion of the FD-ID system tracks price changes for goods, services, and construction products sold to businesses as inputs to production, excluding capital investment. There are two parallel treatments of intermediate demand, each constructed from the identical set of commodity price indexes. The first treatment organizes commodities according to commodity type, and the second organizes commodities using a stage-based, production flow model.
The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to producers increase, businesses are faced with either charging higher prices or taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace.
Under the prior PPI system, the producer price index was substantially more volatile than the consumer price index because the CPI included services while the PPI did not. Volatility has been reduced substantially in the PPI-FD due to the inclusion of services but the PPI still is more volatile than the CPI. Wages are a bigger share of the costs at the retail level than at the producer level and this plays a role in the CPI’s lower volatility. Also, the PPI does not include owners’ equivalent rent—a large and slow moving component in the CPI. Food and energy prices are major sources of volatility in the PPI, hence, the greater focus on the"core PPI" which excludes these two components.
The bond market rallies when the PPI decreases or posts only small increases, but bond prices fall when the PPI posts larger-than-expected gains. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
