Key Takeaways

• Massive PPI surge: Producer prices rose 1.4% month-on-month in April — nearly triple the 0.5% expected.
• Largest since 2022: It was the biggest monthly increase since March 2022, during the post-COVID inflation surge.
• March revised higher: The prior month’s rate was lifted to 0.7%.
• Annual jump: PPI soared 6.0% year-on-year, beating the 4.9% forecast and well above March’s upwardly revised 4.3%.
• Services drive 60% of uptick: Final demand services rose 1.2%, led by machinery and equipment wholesaling margins.
• Goods prices climb 2%: Energy prices in goods rocketed 7.8%, dominating the rise.
• Gasoline shock: Pump prices in the index spiked 15.6%, with diesel, jet fuel, and industrial chemicals also climbing.
• Hormuz the culprit: The strait’s effective closure since late February has pushed crude well above $100 per barrel.
• CPI shock parallels: Tuesday’s data showed consumer prices logged their biggest jump in three years in April.
• Rate hike bets rise: Markets are pricing in more Fed rate hikes in coming months, though the central bank is seen on hold near-term.
• Trucking, chemicals, health: Truck transportation, chemicals, fuels, lubricants, and health and beauty all saw price increases.

U.S. producer price growth accelerated last month, in a fresh sign of the potential inflationary impact of the energy shock caused by the Iran war.

The producer price index for final demand rose by 1.4% on a month-on-month basis in April, compared with expectations for an increase of 0.5%. The rate from March was also revised higher to 0.7%.

It was the largest such rise since March 2022, when the U.S. economy was hit by a burst of inflationary pressure as COVID-era lockdowns began to ease.

In the twelve months to April, PPI jumped 6.0% — compared with forecasts of 4.9% and an upwardly-revised pace of 4.3% in March.

Services and Energy Drive the Surge

Nearly 60% of the April uptick was attributed to a 1.2% advance in the index for final demand services — due mainly to a climb in margins for machinery and equipment wholesaling, the Labor Department said. The indices for truck transportation for freight also gained, as well as those for chemicals, fuels, lubricants, health, and beauty.

Prices for final demand goods moved up 2%, driven in large part by a 7.8% surge in the index’s energy price tracker. Gasoline costs, in particular, spiked by 15.6%, while prices for diesel fuel, jet fuel, and industrial chemicals all rose.

Hormuz Closure Fuels the Fire

Oil prices have skyrocketed since the Strait of Hormuz — a vital waterway off Iran’s southern coast — was all but shuttered following the outbreak of the war in late February.

The global crude benchmark is now hovering well above $100 a barrel. This has, in turn, fueled worries that a wave of inflation could ripple through countries around the world.

Data released earlier this week showed that consumer prices notched their biggest rise in three years in April, also sparked by higher gasoline costs. Analysts have been on the lookout for indications that the effect of soaring energy costs is bleeding into other sections of the economy as well.

Fed Outlook Shifts

Against this backdrop, the amount of Federal Reserve rate hikes expected by the market in the coming months has increased, although the central bank is seen standing pat in the near term.