Producer prices grow at a faster-than-projected rate in April

Investing.com -- U.S. producer prices grew by a faster-than-anticipated rate of 0.5% on a monthly basis in April, due mainly to elevated costs for services and goods, in a sign of lingering inflationary pressures early in the second quarter.

It was a quicker pace than an increase of 0.3% economists had predicted and up from a downwardly revised month-on-month contraction of 0.1% in March.

In the twelve months through April, the producer price index (PPI) for final demand moved up by 2.2% as expected -- the largest uptick since a jump of 2.3% in April 2023. An updated mark for the previous month was also revised lower to 1.8%.

The index for the cost of services increased by 0.6% in April, the sharpest rise since last July, according to the U.S. Bureau of Labor Statistics. Portfolio management expenses played a major role in the number, offsetting a drop in airline passenger costs.

Prices for goods also edged up by 0.4%, reversing a decrease of 0.2% in March, mostly because of gasoline costs.

"While today's data is important for the overall inflation reading, PPI only gives us ~25% of the core PCE basket, so CPI will give us a better sense of where April core PCE is likely to print and how the Fed will subsequently react," Wolfe Research economists wrote.

The figures come as markets are attempting to parse out the path ahead for Federal Reserve interest rates, which currently stand at more than two-decade highs as part of an ongoing effort by the central bank to corral elevated inflation.

Signs of cooling in the U.S. labor market have spurred bets that the Fed could roll out a cut as soon as September, although these wagers could be impacted by the PPI data and consumer prices on Wednesday. Hotter-than-expected readings may lead to traders to bet that the Fed could delay rate reductions for some time.

"The contribution of the hot April PPI print to PCE inflation is likely to be contained," Evercore ISI economists added.

Senad Karaahmetovic contributed to this report.