The April PPI Release: A Cooler Rise, But Still Advancing

The latest data from the U.S. Bureau of Labor Statistics (BLS) revealed that the Producer Price Index (PPI) for final demand advanced 0.2 percent month-over-month in April, coming in cooler than expected as the forecast was for an advance of 0.3 percent.

This follows a decrease of 0.4 percent in March and no change in February. PPI also continued to ascend on a year-over-year basis, increasing by 2.3 percent over the 12 months ending in April.

A Look at Final Demand for Services and Goods

The rise in the final demand index was predominantly driven by a 0.3 percent increase in prices for final demand services, which contributed to 80 percent of the overall advance.

The index for final demand goods also advanced by 0.2 percent. When viewed on a year-over-year basis, the index for final demand less foods, energy, and trade services, a core measure often tracked by economists, moved up by 3.4 percent.

Services and Goods Details

A closer look at the services data reveals the index for final demand services less trade, transportation, and warehousing climbed 0.4 percent, and margins for final demand trade services increased by 0.5 percent.

However, the index for final demand transportation and warehousing services saw a decrease of 1.7 percent, suggesting that we are seeing weakening demand for transportation. A theme that we have been discussing as we digest ISM and other data which suggests the same. Similarly, we are seeing weakness in transportation sector earnings and stock price performance, reflecting this situation.

The services sector saw a significant 4.1 percent rise in prices for portfolio management, contributing to over one-third of the April advance. Prices for food and alcohol wholesaling, outpatient care, loan services, hospital inpatient care, and guestroom rental also moved higher.

Conversely, prices for long-distance motor carrying declined by 2.3 percent, along with the indexes for food retailing and securities brokerage, dealing, and investment advice.

In the goods sector, the index for final demand energy rose 0.8 percent, significantly influenced by an 8.4 percent advance in prices for gasoline after April’s unexpected OPEC+ supply cut.

Other areas with price increases included fresh and dry vegetables, carbon steel scrap, plastic resins and materials, aircraft and aircraft equipment, and fluid power equipment. On the other hand, the index for chicken eggs saw a significant drop of 37.9 percent, which is eggcellent news after there had been such a prolific surge.

Prices for jet fuel and light motor trucks also declined.

Shifting Intermediate Demand

The index for services for intermediate demand rose 0.7 percent in April, a reversal from a decline of 0.2 percent in March.

April’s rise was largely attributable to a 0.8-percent advance in prices for services less trade, transportation, and warehousing for intermediate demand.

Nevertheless, the index for transportation and warehousing services for intermediate demand decreased by 0.8 percent, suggesting weakness in appetite for goods is a theme that continues as we see the economy slowing.

At the stage 3 intermediate demand, prices edged down by 0.1 percent, with a notable decrease of 1.0 percent in the index for total goods inputs to stage 3 intermediate demand. In contrast, prices for total services inputs advanced 0.7 percent.

The stage 4 intermediate demand prices increased by 0.4 percent, with the index for total services inputs to stage 4 intermediate demand advancing 0.9 percent. However, prices for total goods inputs edged down 0.1 percent.

A Continuing Ascent, But With Cooler Momentum

While the PPI came in cooler than expected in April, it still maintained an upward trajectory, reflecting continued price pressures in the economy.

The largest declines and rises in prices were seen in various areas across both goods and services.

Despite the cooler momentum, the persistent rise in PPI suggests continued inflationary pressures that could influence policy decisions by the Federal Reserve.