Wholesale Price Inflation Stays Close to Record High, Suggesting More Inflationary Pain for Households

Line workers spot weld parts of the frame on the flex line at Nissan Motor Co’s automobile manufacturing plant in Smyrna, Tenn., on Aug. 23, 2018. (William DeShazer/Reuters)

Wholesale prices in the United States eased in April but remained close to their record high hit in March, suggesting little near-term inflationary respite for American households as higher producer prices tend to get passed along to end consumers.

The Producer Price Index (PPI), which tracks inflation before it hits consumers, rose by an annual 11.0 percent in April, the Bureau of Labor Statistics said Wednesday. That’s a slight slowdown from March’s revised 11.5 percent pace of producer price inflation, which was the highest in the history of the data series, which dates back to 2010.

A far sharper drop in the pace of wholesale prices was seen in the monthly data, which showed PPI climbing by 0.5 percent from March to April, more than three times slower than the 1.6 percent rate clocked last month. The drop in the monthly PPI data suggests that the pace of wholesale inflation may have peaked.

Further evidence of easing in wholesale price inflationary pressure comes in the form of the so-called core PPI data, which strips out the volatile categories of food and energy and is viewed by economists as a more accurate measure of underlying price pressures.

Core PPI dropped to an annual 8.8 percent in April after a logging 9.6 percent in March, while the month-over-month number came in at 0.4 percent last month, three times lower than the 1.2 percent pace last month.

The headline pace of annual wholesale price inflation fell by less than economists expected while the monthly headline PPI number was in line with forecasts. Both monthly and annual core PPI fell by more than predicted.

Since moves in wholesale prices lag consumer inflation, Thursday’s data suggests more inflationary pain is in store for households before prices ease.

Peak Inflation?

Consumer price inflation, as reflected in the headline Consumer Price Index (CPI) data released Wednesday, showed prices climbing at a slightly slower 8.3 percent over-the-year pace in April compared to an 8.5 percent peak in March.

But the core consumer price inflation gauges accelerated, both on a year-over-year and on a month-over-month basis. In particular, the monthly core inflation reading was twice as high as the 0.3 percent pace notched in March.

Bankrate Chief Financial Analyst Greg McBride told The Epoch Times in an emailed statement that he sees inflation as becoming more broad-based, and cautioned against interpreting the decline in headline CPI data as meaning that inflation has peaked and will now start to decline.

“The pace of price increases moderated, but not as much as expected. Excluding a decline in energy prices—which appears outdated by this point—the increases remain widespread,” McBride said. “With the annual rate ticking down from 8.5 percent to 8.3 percent, it can be tempting to say we’ve seen the peak, but we’ve also been head-faked before as was the case last August.”

Not only did underlying consumer price pressures rise in April even though the headline readings eased a bit, inflation has seeped into more categories, becoming a more broad-based phenomenon.

“Look at the composition of inflation. This suggests there are many drivers now. This is no longer an issue about just the Ukraine war, this is a broad-based inflation process that the Fed has fallen behind in a major way,” Allianz chief economic adviser Mohamed El-Erian said in an interview on CNBC.

El-Erian added that the inflation problem in the United States will inevitably turn into a cost-of-living crisis as price pressures become broader, further erode the wage gains of many American households, and dent demand.

“That’s when an inflation problem becomes also a growth problem. Why? Affordability. The extent to which high prices destroy demand,” the economist replied.

“It’s just a matter of time until we talk about a cost-of-living crisis—and this is what it is,” he added.