| Consensus | Consensus Range | Actual | Previous | Revised | |
|---|---|---|---|---|---|
| PPI-FD - M/M | 0.2% | 0.0% to 0.4% | -0.5% | -0.4% | 0.0% |
| PPI-FD - Y/Y | 2.4% | 2.4% to 2.5% | 2.4% | 2.7% | |
| Ex-Food & Energy - M/M | 0.3% | 0.0% to 0.4% | -0.4% | -0.1% | 0.4% |
| Ex-Food & Energy - Y/Y | 3.0% | 3.0% to 3.3% | 3.1% | 3.3% | |
| Ex-Food, Energy & Trade Services - M/M | 0.3% | 0.1% to 0.3% | -0.1% | 0.1% | 0.2% |
| Ex-Food, Energy & Trade Services - Y/Y | 2.9% | 3.4% | |||
| PPI-FD Goods - M/M change | 0.0% | -0.9% | |||
| PPI-FD Goods - Y/Y change | 0.5% | 0.9% | |||
| PPI-FD Services - M/M change | -0.7% | -0.2% | 0.4% | ||
| PPI-FD Services - Y/Y change | 3.3% | 3.6% |
Highlights
U.S. wholesale price inflation as measured by the Producer Price Index for final demand fell unexpectedly by 0.5 percent in April, following a revised flat reading in March, and nowhere near expectations for a 0.2 percent rise in the Econoday survey of forecasters. Final demand prices advanced 0.2 percent in February and 0.7 percent in January.
Compared to April 2024, final demand PPI rose 2.4 percent, compared to a 2.7 percent increase for the 12 months ended in March.
This data point might further ease concerns that the Federal Reserve's battle against inflation has stalled. However, this is likely the last report that does not reflect the expected inflationary impact on prices from the higher global tariffs on imported goods.
There was no change in prices for final demand goods following a 0.9 percent drop in March. Prices for final demand services declined by 0.7 percent, after a 0.4 percent increase in March.
The drop in prices for wholesale services was the largest decline since December 2009. This was due to a 1.6 percent contraction in the margins for final demand trade services. Wholesalers and retailers ate the cost of higher tariffs in April, and May's data will show how much they continue to absorb vs. how much will be passed on in the form of higher prices.
Food prices fell 1 percent after a 2.1 percent decrease in March but are up 3 percent from April 2024 (compared to +3.7 percent year-over-year in March). Energy prices in April decreased by 0.4 percent after a 3.8 percent decline in March and plunged 8.1 percent when compared to April 2024 (after prices fell 6.7 percent on an annual basis in March).
April final demand prices excluding food and energy fell 0.4 percent, following a 0.4 percent rise in March, and are up 3.1 percent from a year ago after a 3.3 percent rise in March.
Final demand prices excluding foods, energy, and trade services saw a 0.1 percent dip in April, following a 0.2 percent increase in March, and +0.4 percent in February. For the 12 months ended in April, prices for final demand less foods, energy, and trade services rose 2.9 percent, compared to a 3.4 percent rise on an annual basis in March.
Compared to April 2024, final demand PPI rose 2.4 percent, compared to a 2.7 percent increase for the 12 months ended in March.
This data point might further ease concerns that the Federal Reserve's battle against inflation has stalled. However, this is likely the last report that does not reflect the expected inflationary impact on prices from the higher global tariffs on imported goods.
There was no change in prices for final demand goods following a 0.9 percent drop in March. Prices for final demand services declined by 0.7 percent, after a 0.4 percent increase in March.
The drop in prices for wholesale services was the largest decline since December 2009. This was due to a 1.6 percent contraction in the margins for final demand trade services. Wholesalers and retailers ate the cost of higher tariffs in April, and May's data will show how much they continue to absorb vs. how much will be passed on in the form of higher prices.
Food prices fell 1 percent after a 2.1 percent decrease in March but are up 3 percent from April 2024 (compared to +3.7 percent year-over-year in March). Energy prices in April decreased by 0.4 percent after a 3.8 percent decline in March and plunged 8.1 percent when compared to April 2024 (after prices fell 6.7 percent on an annual basis in March).
April final demand prices excluding food and energy fell 0.4 percent, following a 0.4 percent rise in March, and are up 3.1 percent from a year ago after a 3.3 percent rise in March.
Final demand prices excluding foods, energy, and trade services saw a 0.1 percent dip in April, following a 0.2 percent increase in March, and +0.4 percent in February. For the 12 months ended in April, prices for final demand less foods, energy, and trade services rose 2.9 percent, compared to a 3.4 percent rise on an annual basis in March.
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.
