This is a massive amount of inflation that companies are passing on to each other through much of the economy.
By Wolf Richter for WOLF STREET.
The Producer Price Index final demand (PPI), which tracks inflation in prices that companies pay each other, spiked by 1.38% in April from March (+17.8% annualized), seasonally adjusted, the worst since the historic one-month spike in March 2022, driven by services and energy. It had already spiked by 8.7% annualized in March – and by 7.0% and 6.6% annualized in February and January before the energy price spike hit (blue in the chart).
Year-over-year, it spiked by 6.0%, the worst since December 2022, according to data from the Bureau of Labor Statistics today (red in the chart).
The shocker is the spike in services, and services dominate the PPI. The services PPI weighs 68% of the overall PPI, and it completely blew out – that was in addition to the spike in energy prices, and it also shows how some of the energy price increases have moved into other parts of the economy.
The services PPI spiked by 1.18% (+15.1% annualized) in April from March, seasonally adjusted.
Year-over-year, the services PPI jumped by 5.5%, the worst since November 2022. The low point, the point of the coolest recent services PPI inflation, was in December 2023 at 1.8%. The inflation rate has multiplied by more than three since then.
Within the services PPI:
- Trade services (weigh 19% in overall PPI) spiked a huge +2.7% month-to-month not annualized in April from March.
- Transportation & warehousing services (weigh 4.9% in overall PPI) exploded by 5.0% not annualized in April from March.
- But “other services” (weighs 38% in overall PPI) ticked up only +0.1%, after no change in the prior month.
This is really bad.
Core PPI Final Demand, which excludes energy and food components, spiked by 1.03% (+13.1% annualized) in April from March, seasonally adjusted.
This shows the massive impact of the blow-out of the services inflation in PPI, since the price spike of energy components is excluded from the core PPI.
Year-over-year, core PPI jumped by 5.2%, the worst since December 2022.
The PPI for energy prices spiked by 7.8% in April from March (+145% annualized), which came on top of the 10.1% spike in March.
This pushed the year-over-year increase to 22.4% in April.
The energy PPI performs such huge spikes and plunges that the year-over-year percentage changes blast through the top and bottom of the chart; so to gain some perspective, it’s helpful to look at the price level, rather than the percent change.
The chart shows the price level of the energy PPI. The big spikes in March and April pushed the price level to the highest since July 2022.
The PPI for core goods (goods without food and energy) jumped by 0.65% (+8.1% annualized).
This pushed the year-over-year increase to 4.6%, the worst since February 2023.
This is a massive amount of inflation in prices that companies pay each other and are trying to pass on to each other. And some of that will seep into consumer price inflation measures, such as the CPI and PCE price index.
The Fed has a real problem on its hands, and it has been boiling for months at the PPI level, and some of it already seeped into consumer price inflation, with the CPI jumping by 3.8% in April on core services and energy, but that jump didn’t yet include the dynamics working their way through the business sector in April.
In case you missed it: CPI Inflation Blows Past Fed Rates as Core Services, Gasoline, Electricity, and Food Spike. Fed’s “Real” Rates Are now Negative
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I just replaced garage door. Supplier said that price goes up after May 1. It’s no surprise given the higher cost of fuel and everything else. inflation is a stubborn bitch, once started, won’t stop easily.
Yep. I am currently replacing roof with standing seam metal. Ouch! Well I figure it ain’t gettin cheaper, and it should be good for 2+ cycles of replacing it with asphalt singles
Bonds are up today. They have spoken.
Are they denying reality again, which of course is, bond prices must fall as yields rise significantly?
Just a whisper, wait for much more…
In real estate it’s been an incredibly frustrating year. Lenders last minute backing out of funding purchases and refinances or increasing rates altogether. Owning property, we keep rents low and are seeing more people late on rent and households combining. This is certainly a tough year on the way to being really hard on all.
Apologies for posting unrelated quote from Babylon Bee. This just reminded me of Wolf’s RTGDA 😄
PATMOS — The Apostle John emerged from his cave earlier this week feeling confident that he couldn’t have been more clear in his description of the revelation he’d received.
“Perfect. Crystal clear,” John declared, setting aside his ink. “That should keep anyone from coming up with weird interpretations. If anything, I may have made things too obvious, perhaps spelled things out too much. It’s okay, though. It will make it more readable for kids.”
When asked by a scribe the exact identity of the beast with ten horns and seven heads, John sighed with impatience and said to just read what he wrote.
“It’s literally spelled out,” said John. “All you have to do is read it. I can’t make it simpler than that.”
At publishing time, John had added a few more clarifying verses about the giant burning mountain falling into the sea just to be doubly sure there could be no confusion.
Can’t blame any of this inflation on a virus folks.
This implies that “Trump Devotion Syndrome” has a bacterial origin…
The Straite of Hormuz is about to become a water cooler topic considering that approximately 25% of oil consumed globally passed through it before the war broke out.
Not to mention a significant portion of global fertilizer.
This is by every measure a horrendous setup for nearterm inflation. There’s no getting around it, sadly.
The FED should be doing an emergency 100 basis point RATE HIKE.
Volcker did a 250 basis point emergency rate hike when he took over the Fed in 1979. We need a similar rate hike now. Jimmy Carter is looking better every day.
That raises a good question. With inflation primarily being caused, or blamed on the scarcity of oil driving up prices everywhere, would a rate hike actually do anything to help?
Inflation seems to be mostly, dare I say, transitory, due to this issue?
Would increasing interest rates actually do anything for Supply Side inflation?
1. Central banks can look through the energy part of inflation. But look at the non-energy parts of PPI, including services and core goods, look at the fat red lines in those charts. Inflation has been accelerating for quite a while before the energy price spike, as I pointed out in the article. Energy prices came on top of it.
2. The idea of raising rates to combat inflation is to create tighter financial conditions and take some exuberance out of the economy so that demand backs off, which can bring down inflation — and it did in 2022-2024.
And I just don’t get it Wolf, the NFCI has done nothing but get looser and looser over the last year. Risk seems to be a non-event for everyone, even with a blockade of the Gulf? WTF?
“The NFCI decreased to –0.52 in the week ending May 8. Risk indicators contributed –0.29, credit indicators contributed –0.15, and leverage indicators contributed –0.08 to the index in the latest week.
The ANFCI also decreased in the latest week, to –0.48. Risk indicators contributed –0.35, credit indicators contributed –0.14, leverage indicators contributed –0.05, and the adjustments for prevailing macroeconomic conditions contributed 0.06 to the index in the latest week.”
The FED chose this when they started cutting rates and slowed QT.
“Wolf….Wolf….Wolf……is it time to play Taps for the U.S. Dollar?” “Ten-hut!”
I posted yesterday that we received 30% increase on our raw material and we buy millions of pounds each year and we passed it to our customer. Wolf’s article and PPI data confirms companies are passing this inflation to their customers. There are things we have less control over (like Covid) and then there and things we dig a hole and jump into it. This current situation is all our doing.
‘The Fed has a real problem on its hands, and it has been boiling for months at the PPI level, and some of it already seeped into consumer price inflation, with the CPI jumping by 3.8% in April on core services and energy, but that jump didn’t yet include the dynamics working their way through the business sector in April.”
How much do you want to bet they’re going to pull out their “transitory” BS again? They probably won’t use the word, but they’re going to do the same exact thing. These scumbags won’t stop at anything to avoid doing their job. They go kicking and screaming to rate hikes, but cut rates in an instant. The fact that they never got inflation under control should be cause for investigations and imprisonment of FED officials for dereliction of duty.
The real villain is the Big BS Bill and complete failure by Congress to balance the budget.
Warsh has already said that AI is deflationary and rate cuts actually need to be done preemptively. Even before any data has been seen. So if anything we’re in for a worse time than just the previous transitory mistake.
That’s the second part of what he said. The first part was that AI investment boom is INFLATIONARY. And that there is some time between those two, but that no one knows how much time.
This whole AI mania/extreme stock market bubble is inflationary. It is disturbingly gross.
Depth, I agree. The percentage of the economy that is driven by the capital class will keep growing as long as the stock bubble stays alive.
Nearly $600 for front brake job on a small car, the greater part of which was “labor”.
Next car will a Fred Flintstone vehicle. YaBaDabAdo!
@NoBadCake,
Youtube has saved Me a lot of money in repairs ….Auto and Home.
Cooked numbers on a cooked economy.