U.S. wholesale prices rose sharply last month, a sign that inflation pressures remain stubbornly high after three elevated readings in consumer prices to start the year.
The Labor Department said Tuesday that its producer price index — which tracks price changes before they reach consumers — climbed 0.5% from March to April, after it dipped 0.1% the previous month. Measured year over year, producer prices rose by 2.2% in April, up from 1.8% in March and the biggest increase in a year.
A measure of underlying inflation, which excludes the volatile food and energy categories, also jumped 0.5% from March to April, and rose 2.4% compared with a year earlier. Economists closely watch core prices because they provide a better signal of where inflation is headed than the overall figure.
Tuesday's unexpectedly high readings may raise concerns on Wall Street, at the Biden White House and for inflation-fighters at the Federal Reserve. Last week Fed officials underscored that they were prepared to leave their key interest rate at 5.3%, the highest in 23 years, as long as needed to bring inflation back to its 2% target. Consumer price inflation has fallen steadily since late 2022 but stalled at an elevated level in the first three months of this year.
At the same time, some wholesale prices fell in ways that suggest consumer inflation could cool a bit this month. A measure of air fares fell 3.8%, and food prices dropped 0.7%. Vegetable costs plunged 18.7%, just between March and April. Hospital prices also declined.
That data, as well as some other figures, feed into the Federal Reserve's preferred measure of consumer prices, which will be released toward the end of this month. Economists estimate that figure may come in a bit lower than the previous month because of declines in items like air fares.
“In that respect, April’s news was mixed but, on balance, encouraging,” Paul Ashworth, an economist at Capital Economics, wrote in a research note.
On Wednesday, the government will release the latest consumer inflation data, which will command much greater attention from investors and economists. Analysts forecast it will slip slightly, to an annual rate of 3.4%, from 3.5% in March, after rising for two months. Core inflation is forecast to fall to 3.6% from 3.8%.
Last month, wholesale prices were pushed higher by more expensive gas, electricity, and freight shipping. A quirky measure of the cost of managing stock portfolios for investors also rose sharply, elevating the overall index.
As recently as March, Fed officials had forecast they would reduce their key rate three times this year. But in their most recent comments, most suggest they could cut once or twice this year, or maybe not at all.
Markets that had been positive for most of the morning flipped after the report was released and headed lower.
Persistent inflation has discouraged consumers, whose confidence has fallen in recent months, and threatens President Joe Biden’s reelection bid.
The producer price index can provide an early read on where consumer inflation is headed. It is also closely watched because some of its data is used to compile the Fed’s preferred inflation gauge, known as the personal consumption expenditures price index.