Editor’s note: This article was updated to add details and context.
U.S. producer prices jumped the most since 2022 last month as the Strait of Hormuz energy shock continued to feed through the inflation pipeline, adding fresh concerns over the Federal Reserve’s rate outlook.
The rate of increase in the headline Producer Price Index climbed from an upwardly revised 4.3% year-over-year in March to a whopping 6% in April, the Bureau of Labor Statistics reported Wednesday.
The outcome largely topped economist expectations of 4.9% and marked the hottest annual PPI reading since December 2022.
On a monthly basis, wholesale prices rocketed 1.4% – the largest monthly jump since March 2022 – far surpassing both the previous 0.7% and the expected 0.5% surge.
Stripping out food and energy, core PPI accelerated from an upwardly revised 4% to 5.2%, topping the 4.3% forecast. Again it’s the highest annual rate since December 2022.
Underlying month-over-month pressures rose 1%, accelerating from the prior 1% against a 0.3% consensus.
The April PPI hot print follows Tuesday’s higher-than-expected Consumer Price Index reading of 3.8% and reinforces fears of more restrictive monetary policy ahead.
Ahead of the release, Fed interest-rate futures had priced in a nearly 50% chance of a rate hike by December 2026.
Energy And Transportation Did The Damage
Energy did the most visible damage at the headline level.
The final demand energy index jumped 7.8% in April after a 10.1% surge in March, with gasoline prices alone soaring 15.6% on the month.
Within the upstream pipeline, the data is even more striking: unprocessed energy materials surged 9.2% in April and are now up an extraordinary 48.9% year-over-year, with crude petroleum prices climbing 11.3%.
But the more concerning detail for the Federal Reserve wasn’t energy.
“Nearly 60 percent of the April rise in final demand prices can be attributed to a 1.2-percent advance in the index for final demand services,” the BLS reported.
Final demand trade services margins, which measure the spreads wholesalers and retailers collect, jumped 2.7% in April after being roughly flat in March.
The transportation and warehousing services component surged 5.0% on the month, the largest gain in years, as truck transportation of freight prices climbed and the energy passthrough hit logistics costs hard.
Combined, these two segments accounted for two-thirds of the broad-based April advance in final demand services.
The Largest Monthly Movers In April PPI
Among the steepest seasonally adjusted monthly increases in April producer prices:
- Gasoline: +15.6%
- Diesel fuel (processed): +12.6%
- Crude petroleum: +11.3%
- Unprocessed energy materials: +9.2%
- Truck transportation of freight: +8.1%
- Final demand energy: +7.8%
- Processed energy goods: +7.8% (sixth straight monthly advance)
- Final demand transportation and warehousing services: +5.0%
- Machinery and equipment wholesaling margins: +3.5%
- Final demand trade services margins: +2.7%
On a year-over-year basis, the most extreme readings were in the upstream pipeline: unprocessed energy materials (+48.9%), government purchased energy for export (+50.0%), final demand energy (+22.7%), processed fuels and lubricants for intermediate demand (+27.3%), and final demand distributive services (+8.8%).
Final demand trade services posted an 8.1% annual gain, while final demand transportation and warehousing services climbed 12.2%.
Conversely, the index for chicken eggs collapsed 49.7%.
Market Reaction
Equity futures sold off in the immediate aftermath of the PPI shock before paring losses ahead of the cash open.
S&P 500 futures fell from 7,430 to 7,392 before recovering to 7,418, with the index tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY) – on track to open flat for the day.
Nasdaq 100 futures plunged from 29,280 to 29,090 and were last trading at 29,210. Dow futures fell 0.32% to 49,640, while small-cap Russell 2000 futures were down 0.27% to 2,840 after dipping as low as 2,830.
The two-year Treasury yield, the maturity most sensitive to Fed expectations, rose from 3.98% to 4.02%.
The U.S. Dollar Index climbed 0.24% to 98.26, signaling currency markets are now buying into the higher-for-longer narrative after a muted reaction to Tuesday’s CPI.
Spot gold slipped 0.25% to $4,687 per troy ounce, while Bitcoin (CRYPTO: BTC) tumbled 0.9% to $80,304 after dropping below $80,000 intraday.
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