After yesterday's hotter than expected CPI (driven in large part by Energy, but seeing some contagion into Services costs), this morning's Producer Price print for April was expected to show a major surge in annual wholesale inflation.
With the eight straight monthly increase, PPI rose by a massive 1.4% MoM (vs +0.5% MoM exp) - the biggest MoM jump since March 2022, lifting PPI by a stunning 6.0% YoY (vs 4.8% YoY exp). That is the hottest PPI YoY since Dec 2022...
Source: Bloomberg
Services and Energy saw the biggest rise (while construction costs actually deflated very modestly)...
Core Producer Prices spiked 1.0% MoM (more than triple the +0.3% exp) smashing Core PPI YoY up 5.2% (also the hottest since Dec 2022)...
Source: Bloomberg
And finally, one could argue this is as bad as it gets for the energy component as oil prices have stabilized...
Source: Bloomberg
But of course, the pipeline of those energy costs is perhaps only just starting to trickle into the rest of the economy.
PPI triggered a spike in 2Y yields...
Now back above 4.00% at their highest since March with the market now pricing in a 50% chance of one rate-hike in 2026...
It appears any chance of Warsh cutting rates (as per Trump's expectations) are off the table... for now.
Finally, there is perhaps a silver lining from this ugly PPI report. Other than airfares (which rose 3%) the components that feed through into PCE inflation were pretty tame; portfolio management fees dropped 2.4% and the various medical-care components showed a maximum rise of 0.3%.
That may mitigate the impact of the report, but it’s still hard to totally ignore the risk that inflation becomes a more pressing concern moving forward.