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April PPI Above Expectations

The PPI is the producer price index, and is a measure of wholesale prices. In general, higher producer prices make their way into higher consumer prices. The April PPI was up 0.5% from last month which was much higher than the 0.3% expected. It also reversed the direction of last month’s decline. The yearly PPI was up 2.2%, also an increase from recent levels (chart below). The Core PPI, which excludes food and energy, was up 0.5% vs last month which was well above the 0.2% expected. Core was up 2.4% vs last year, also an increase from last month.

For most of the past couple of years, services inflation has exceeded goods inflation. That’s because people bought a lot of electronics and other home goods early in the Covid lockdowns. Once people felt more comfortable returning to concerts, restaurants, and travel, demand for services rose quickly at the same time many people had finished building out home offices and home entertainment systems. That trend has been inconsistent in recent months, but continued this month with services prices up 0.6% for the month vs 0.4% for goods.

We’ve seen a series of higher than expected inflation reports in recent weeks, and that’s a big part of why more Fed Governors are saying they might not need to lower the fed funds rate later this year. There have been occasional comments that they might need to raise rates this year. While I disagree with Chairman Powell that the current fed funds rate is “restrictive”, I don’t think they’re going to raise rates at the next couple of meetings and will remain in wait-and-see mode. Changing the fed funds rate anytime close to the November election will result in the appearance of political advocacy, something the Fed would prefer to avoid.

The conclusion:  Higher for longer (still) with no near-term rate changes. with any questions.


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