Another key inflation gauge cooled further in April

By Bryan Mena, CNN

Wholesale annual inflation slowed in April, adding to signs that price pressures are easing.

The Producer Price Index, a key measure of price changes at the wholesale level, slowed to 2.3% for the 12 months ended in April, the Bureau of Labor Statistics reported Thursday.

That was below the annual increase of 2.7% in March and economists’ expectations of a 2.4% increase. It’s also the slowest annual increase since 2021. The year-over-year decline was driven by falling prices for eggs, grains, chickens, diesel and liquified petroleum gas.

On a monthly basis, prices ticked up 0.2%. During the previous month, they fell by 0.4%. The monthly gain was largely attributed to higher prices in the services sector.

Gasoline prices increased 8.4% in April from the prior month. Oil production cuts announced by OPEC+ in April likely pushed up energy prices that month as crude oil prices rose.

But weaker consumer demand and better supply chain conditions remain the main driving forces behind cooling supplier prices.

The core index, which strips out volatile food and energy prices, rose 0.2% in April from the prior month, and 3.2% from a year earlier.

“The inflation pipeline is clearing as supply chains for the most part have returned to normal and commodity prices have eased significantly in response to slowing global conditions. Investors should expect to see further easing in prices throughout the balance of 2023,” Jeffrey Roach, chief economist at LPL Financial, wrote in an analyst note.

It is possible for higher energy costs to spur price increases in other goods and services that utilize energy, such as freight, if they remain elevated for long enough, said Stephen Juneau, an economist at Bank of America. He added that the price increases tied to the OPEC production cuts have already reversed this month.

So far so good

The Federal Reserve began to aggressively raise interest rates last year to slow demand and tamp down inflation and it has seen some progress since then.

The Consumer Price Index, which measures price changes across a basket of consumer goods, rose 4.9% in April, down from the 5% rise in March, the BLS reported Wednesday. That was the 10th consecutive month of slowing consumer inflation and the lowest reading since April 2021. Core inflation, which excludes food and energy prices, was unchanged at 5.5% for the 12 months ended in April.

PPI is also a closely watched inflation gauge: Since the producer-centric index captures price shifts upstream of the consumer, it’s sometimes looked to as a potential leading indicator of how prices may eventually land at the store level — though that could take several months, Juneau said.

Slowdown ahead?

While consumer inflation remains well above the Fed’s 2% target, there are some indicators pointing to a slowdown in demand — which could ease some inflationary pressure. US household spending was flat in March from the prior month, after advancing 0.1% in February.

“The process of getting inflation back down to 2% has a long way to go and is likely to be bumpy,” Fed Chair Jerome Powell said last week in a news conference after the central bank raised its benchmark lending rate by a quarter point.

Tighter credit conditions after recent bank failures could also curb demand and slow the economy. A survey of senior loan officers gauging lending activity in the first quarter released on Monday showed that banks began toughening their lending standards even before the banking turbulence in March.

Recent bank stresses can make accessing credit even harder and could even equate to a percent-and-a-half rate hike, according to an estimate from Torsten Slok, chief economist at Apollo Global Management, shortly after the collapse of Silicon Valley Bank and Signature Bank.

Fed officials signaled in their post-meeting statement last week that a pause in rate hikes is a possibility, and data pointing to inflation broadly easing could keep them on that path in June.

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