The Producer Price Index has risen with Inflation persistance, making prices increase for consumers!
Producer Price Index (PPI) – a measure of what producers receive for the goods they produce – increased by 0.5% percent in April due to inflation, according to the Bureau of Labor Statistics (BLS). This causes businesses to pay more for goods and services, which makes prices rise for consumers.
Despite March seeing a decrease of 0.1%, April exceeded the estimated 0.3% increase. If you compare with last year, the PPI climbed to 2.2%, up from 1.8%, aligning with economists’ expectations and marking the highest percentage since April 2023.
On top of that, the core PPI – which excludes the volatile food and energy sectors – also rose by 0.5%, higher than the expected 0.2%. On a yearly basis, the core PPI held steady at 2.4%, matching market projections. The PPI is a key indicator of future inflation, as it reflects early supply chain costs. Since January 2021, it has cumulatively increased by 25%. Following the report, financial markets turned negative in pre-market trading, raising fears of prolonged high interest rates.
“Inflation is not going away. In this environment, there is absolutely no justification for a rate cut by the Fed. But everyone got so used to artificially low rates, their perceptions are skewed”, said Brian Wesbury, chief economist at First Trust LP.
Cause of Inflation
The White House and some Democratic lawmakers have blamed “corporate greed” or “greedflation” for the high prices. However, a study by the Federal Reserve Bank of San Francisco suggests this explanation is overly simplistic. While acknowledging the difference between production costs and sales prices, the study found these were in line with previous economic recoveries, meaning corporate pricing hasn’t been the culprit. Instead, it highlighted that government stimulus and the Fed’s low interest rates boosted consumer demand in the middle of supply chain issues and product shortages.
“Aggregate markups – the more relevant measure for overall inflation – have stayed essentially flat since the start of the recovery. As such, rising markups have not been a main driver of the recent surge and subsequent decline in inflation during the current recovery”, the study stated.
On the other hand, other studies have considered corporate and their seek for profit. The Kansas City Fed pointed out that corporate profits contributed to inflation in 2021 but decreased their influence in 2022.
“This pattern is consistent with anticipatory price-setting, in which firms expect higher costs of production in the near future and thus raise prices on the goods they produce today”, study says.
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