U.S. Economic Brief || Producer prices increase in April as production costs of goods reaccelerate

Producer prices increase in April as production costs of goods reaccelerate

*The U.S. Producer Price Index (PPI) for final demand increased by 0.5% m/m, a deceleration from March’s upwardly revised 1.6% m/m increase, pushing the yr/yr increase down to 11.0% from 11.5% in the previous month (Chart 1). While final demand services prices were flat over the month, April’s PPI data provide little relief on the goods inflation front, with prices across a broad spectrum of goods categories posting robust monthly increases. Taken together, this suggests that, while measures of yr/yr inflation have probably peaked, they will likely remain elevated through 2022.

*Core PPI for final demand (excluding food, energy, and trade services components), a better gauge of underlying price trends, increased 0.6% m/m, a modest improvement on the 0.9% increase in March. On a yr/yr basis, core PPI ticked down 0.1pp to 6.9% (Chart 2).

*Elevated fuel and energy commodity costs are likely to exert further upward pressure on distribution and shipping costs while the effects of disruptions to production and supply chains related to Russia’s invasion of Ukraine and China’s lockdowns could further exacerbate price pressures, although a slowdown in Chinese manufacturing could also impinge on commodity and raw material prices.

*Intermediate input costs (excluding food and energy) jumped 1.4% m/m in April, leaving the three-month annualized increase at 10.2%, a modest deceleration, but well above historical levels. Over the last year intermediate input costs are up 16.9% and have increased 31% relative to February 2020 (Chart 3). The steep run-up in costs over the last year points to continued increases in consumer prices as businesses adjust prices with a lag, although a critical consideration going forward is the degree to which businesses will maintain pricing power amid the current backdrop of four-decade high inflation, depressed consumer confidence, and squeezed real purchasing power.

*The pattern of monthly increases in the PPI suggest headline inflation pressures remain elevated. Final demand food prices increased 1.5% m/m on the heels of respective 2% and 2.5% monthly increases in February and March. Final demand energy prices continued to increase in April, albeit at a more modest pace relative to February and March, increasing 1.7% m/m (Chart 4).

*Final demand goods prices (excluding food and energy) have reaccelerated substantially over the last four months. Durable goods prices increased 0.9% m/m, lifting the six-month annualized increase to 9.5% while non-durable goods prices increased 0.7% m/m and 8.7% on a six-month annualized basis (Chart 5).

*Final demand services prices were flat over the month. Final demand trade services prices (which measure wholesaler and retailer margins) declined 0.5% m/m following a 4.8% increase through Q1, while finished consumer services less trade, transportation, and warehousing prices, which account for about one-third of the PPI, ticked down 0.2%. Notably, transportation and warehousing costs have spiked, increasing 4% m/m in March and 3.9% in April, reflecting sharp increases in fuel costs.

Chart 1. PPI Final Demand (yr/yr, %)

Chart 2. Core PPI (Final Demand ex. Food, Energy, and Trade Services)

Chart 3. PPI Intermediate Materials (ex. Food and Energy)

Chart 4. PPI Final Demand Foods and Final Demand Energy

Chart 5. PPI Final Demand Nondurable Goods (ex. Food and Energy) and Durable Goods

Mickey Levy, mickey.levy@berenberg-us.com

Mahmoud Abu Ghzalah, mahmoud.abughzalah@berenberg-us.com

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