A measure of US inflation pressure rose beneath market expectations in April, with the Producer Prices Index (PPI) increasing by 2.4% annually. The report does not fall in line the Federal Reserve assertion that tame inflation pressure is transitory, although the more informative consumer price inflation report due for release on Friday may yet support that view.
- Producer prices excluding food and energy rose 2.4% annually, matching last month’s reading which was the slowest pace of growth since last May.
- Overall, the PPI rose 0.2% in April compared to March, after rising 0.6% previously.
- The report indicates that the Federal Reserve’s assertion that muted price gains are “transitory” is not set in stone.
The report measures wholesale costs and other selling costs for businesses and indicates that inflation pressures in the producer pipeline are weaker than previously believed. April consumer prices figures due for release on Friday are predicted to show an uptick in core and overall inflation pressures. With the failure of the PPI data to demonstrate this assertion, the Friday report may prove all the more influential on the markets.
Producer prices rose 0.3% after gaining 1% the month prior. Services prices rose 0.1% after gaining 0.3%. Excluding the volatile components of food, energy, and trade services, rose 0.4% from the month prior and rose 2.2% annually. Inflation remains muted, with investors now expecting the Federal Reserve to cut interest rates in the coming year. The presidential administration is also pressuring the Fed to reduce borrowing costs in the view that it may stimulate the economy.
Energy prices rose 1.8% from the month before, and food costs dropped -0.2%. The consumer price index is generally considered to be the more important indicator of inflation, but the PPI provides key insights into the production pipeline and its effect on the economy.
US Final Demand #PPI +0.2% in April driven by higher core & energy prices.
Core PPI +0.4% (strongest since Jan2018) as portfolio management cost rebound 5.3%.
Headline & Core PPI #inflation at 2.2%
--> acyclcial inflation rebounds but procyclcial remains subdued pic.twitter.com/JFvnkVaF6E
— Gregory Daco (@GregDaco) May 9, 2019
Gold prices have ticked downward following the news of unexpectedly weak inflation pressure, which is typically bullish for the dollar and bearish for gold. Spot gold last traded at $1,281.20/oz, down -0.18% with a high of $1,285.44/oz and a low of $1,279.75/oz. June gold futures are trading up 0.04% at $1,281.90/oz.