PRODUCER PRICE GAINS SLOWED IN APRIL BUT REMAIN ELEVATED / THE WALL STREET JOURNAL

Producer Price Gains Slowed in April but Remain Elevated

Key reading of producer-level inflation showed 11% annual rate, the fifth straight month of double-digit increases

By Gwynn Guilford

U.S. suppliers’ price increases slowed last month to 0.5% from 1.6% in March./ PHOTO: GEORGE FREY/GETTY IMAGES

U.S. suppliers’ price increases eased in April as energy and food costs dropped, but producer-level inflation remained close to historical highs.

The Labor Department on Thursday said the producer-price index, which generally reflects supply conditions in the economy, increased 11% on a 12-month basis in April. 

That marked its fifth consecutive double-digit gain and a decline from an upwardly revised 11.5% increase the prior month.

The March gain was the highest since records began in 2010, pushed up by surging energy prices after Russia invaded Ukraine.

The PPI report comes a day after the Labor Department said consumer inflation edged down slightly last month from a four-decade high but continued to face upward price pressures.

Mahir Rasheed of Oxford Economist said the signs of moderating supplier price gains were encouraging, but it’s too soon to expect much relief from inflation.

“Even if we get past the peak, it doesn’t tell us much about the descent. 

If prices are still really high for the next six or seven months, and producers and consumers are still feeling that pressure it’s hard to call that a victory,” Mr. Rasheed said. 

“There’s still a lot of work to be done on the part of the Fed. 

Demand is still pretty strong,” he added, referring to Federal Reserve efforts to raise interest rates to cool inflation.

Investors are closely watching inflation trends for clues on the pace of the Federal Reserve’s interest-rate increases. 

The Fed faces the tough challenge of tightening monetary policy enough to subdue inflation and cool the economy without snuffing out growth and triggering a recession. Central-bank officials on May 4 lifted rates by half a percentage point, the biggest increase since 2000.

On a one-month basis, producer prices rose a seasonally adjusted 0.5% in April from the prior month. 

That marks a deceleration from the upwardly revised 1.6% gain in March. 

April’s rate of increase was the lowest since September 2021, but was higher than the average monthly gain of 0.2% in the two years before the pandemic.

The so-called core price index—which excludes the often-volatile categories of food, energy and supplier margins—slipped slightly, climbing 0.6% in April from a month earlier, after jumping 0.9% in March.

The overall trend in producer prices signals that inflation pressures continue to build throughout the production pipeline as strong demand, fueled in part by government stimulus, chokes already strained supply chains. 

This dynamic is being worsened by rising energy and commodities prices caused by the Ukraine war, as well as by China’s extensive lockdowns in its bid to contain Covid-19.

The latest inflation figures coincide with an otherwise upbeat outlook for the U.S. economy, as it rebounds from disruptions caused by Covid-19 and as a booming labor market drives spending. 

Employers added 428,000 jobs in April—the 12th straight month in which job gains exceeded 400,000—and demand for workers hovered near record highs. 

Consumer spending, the engine of the U.S. economy, picked up in March.

The producer-price index measures what suppliers are charging businesses and other customers. 

It generally captures the changes in input costs that producers are facing. 

Those don’t necessarily feed directly into the prices consumers pay, though they can reflect inflation pressure building throughout the production pipeline.

The index also measures margins for retailers and wholesalers, which fell 0.5% in April from March, but still up 15.4% from a year earlier. 

Declines were broad-based across industries, spanning machinery, apparel, food and alcohol, flooring, portfolio management and bookselling.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said this drop is worth noting because widening margins have been a major driver of consumer inflation since the pandemic began. 

“A sustained decline in margins would change the overall inflation picture, but a decline in one month is not definitive,” he said.

Producer prices for goods, excluding food and energy, rose 10% in April from a year earlier—reaching the highest pace in records to 2010. 

Services producer prices decelerated to 8.1% last month, from 9.2% the prior month.

“For producer prices, at least, the real story is still goods,” said Mr. Rasheed.