Producer Prices Rise Hotter Than Expected as Inflation Pressures Persist

The producer price index (PPI) has surged 25 percent cumulatively since January 2021.
Producer Prices Rise Hotter Than Expected as Inflation Pressures Persist
Shelves of baby formula are seen in a Walmart Supercenter in Houston, Texas, on July 8, 2022. (Brandon Bell/Getty Images)
Andrew Moran

Producer prices—the cost of goods and services paid by businesses—rose hotter than expected in April, adding to concerns that the U.S. economy could be in the middle of another inflation wave.

The producer price index (PPI) rose 0.5 percent last month, up from negative 0.1 percent in March, according to the Bureau of Labor Statistics (BLS). This topped the consensus estimate of 0.3 percent.

Compared to the same time a year ago, the PPI rose to 2.2 percent, up from 1.8 percent. This was in line with economists’ expectations and represented the highest reading since April 2023.

Core PPI, which strips the volatile food and energy components, climbed 0.5 percent, up from negative 0.1 percent. This topped the market forecast of 0.2 percent.

On a year-over-year basis, the core PPI remained at 2.4 percent and in line with market projections.

Final demand for services swelled 0.6 percent in April, the largest increase since July 2023, while final demand for goods advanced 0.4 percent.

The PPI is a widely watched inflation measurement because it functions as an indicator of future inflation since it begins early in the supply chain process.

Since January 2021, the PPI has risen 25 percent cumulatively.
The next major inflation report will be the consumer price index (CPI), which will be released on May 15. It is expected to be unchanged at 3.5 percent, according to the Federal Reserve Bank of Cleveland’s Inflation Nowcasting model.

Market Reaction

The financial markets turned negative in pre-market trading after the PPI report, causing investors to be fearful of higher-for-longer interest rates.

The leading benchmark indexes were down as much as 0.4 percent.

U.S. Treasury yields were little changed, with the benchmark 10-year yield hovering around 4.49 percent.

The U.S. Dollar Index (DXY), a measurement of the greenback against a basket of currencies, topped 105.30 after the latest inflation data.

“Inflation is not going away,” said Brian Wesbury, the chief economist at First Trust LP, on X (formerly Twitter). “In this environment, there is absolutely no justification for a rate cut by the Fed. But everyone got so used to artificially low rates, their perceptions are skewed.”

‘Greedflation’ Not the Cause of Inflation: Fed

As the PPI indicates, input cost pressures have been enormous and have reaccelerated in recent months.

This year, the White House has blamed “corporate greed”—also colloquially known as “greedflation”—as the cause of rampant price inflation.

People shop in a grocery store in Los Angeles, Calif., on Oct. 12, 2023. (Mario Tama/Getty Images)
People shop in a grocery store in Los Angeles, Calif., on Oct. 12, 2023. (Mario Tama/Getty Images)

Democratic lawmakers have made similar assertions at recent Senate and House hearings.

However, a new Federal Reserve Bank of San Francisco study suggested it is not as simple as the administration claims.

Regional central bank economists conceded that while there have been markups—the difference between production costs and sales prices—the rate has been on par with previous economic recoveries.

“Aggregate markups—the more relevant measure for overall inflation—have stayed essentially flat since the start of the recovery,” the paper stated. “As such, rising markups have not been a main driver of the recent surge and subsequent decline in inflation during the current recovery.”

In other words, corporate pricing has not been the root cause of the inflation the economy has endured since 2021.

Instead, the report noted, massive government stimulus and the Fed’s historically low interest rates enhanced consumer demand amid supply chain disruptions and product shortages.

Other studies have assessed corporate profits’ role in the inflation spike.

In May 2023, the Kansas City Fed noted that corporate profits contributed to the inflation surge in 2021, but “their contribution fell in 2022.”

“This pattern is consistent with anticipatory price-setting, in which firms expect higher costs of production in the near future and thus raise prices on the goods they produce today,” the paper said, adding that private companies are “forward-looking” when setting prices.

The regional institution also explained in September 2022 that consumer spending and behavior possessed an outsized role in companies’ pricing decisions.

“Food prices increased at the fastest pace in more than two decades from July 2021 to July 2022,” Kansas City Fed economists wrote. “We show that this increase has not been driven by commodity prices but by an increase in consumer spending on food at home and increases in costs along the supply chain.”

Despite the data providing a more nuanced assessment of current economic conditions, the administration and lawmakers are wrestling with corporate pricing and shrinkflation.

In February, Democrats introduced the Shrinkflation Prevention Act of 2024, which would stop shrinkflation by giving the Federal Trade Commission (FTC) and state attorneys general the authority “to crack down on corporations deceiving consumers.”

The White House announced in March a joint FTC and Department of Justice strike force that aims to “root out and stop illegal corporate behavior that hikes prices on American families.”

Andrew Moran has been writing about business, economics, and finance for more than a decade. He is the author of "The War on Cash."