US wholesale price April data points to easing inflation pressure

Wholesale prices in the United States rose modestly last month, the latest sign that inflationary pressures may be easing more than a year after the Federal Reserve unleashed an aggressive campaign of steadily higher interest rates.

From March to April, the government’s producer price index rose just 0.2 percent after falling 0.4 percent from February to March, held down by falling prices for food, transportation and warehousing.Compared with a year earlier, wholesale prices rose just 2.3 percent, the 10th straight slowdown and the lowest figure since January 2021. Lower energy prices helped slow the annual inflation rate.

Excluding volatile food and energy prices, so-called core wholesale inflation rose 0.2 percent from March and 3.2 percent from 12 months earlier. The year-over-year increase in core wholesale inflation was the lowest since March 2021 and marked the seventh straight slowdown. The Fed pays particularly close attention to core prices, which tend to be a better gauge of the economy’s underlying inflation pressures.

The producer price index that the US Department of Labor issued Thursday reflected prices charged by manufacturers, farmers and wholesalers. It could provide an early sign of how fast consumer inflation will rise. The index is used to help calculate the Fed’s favoured inflation gauge: the Department of Commerce’s personal consumption expenditures index.

April’s mild producer price figures amount to “much needed and awaited good news” for the Fed’s fight against inflation, said Ryan Sweet, chief US economist at Oxford Economics.

Thursday’s wholesale figures follow a government report from Wednesday that showed that at the consumer level, core prices rose 0.4 percent from March to April — the fifth straight month that those prices have risen at least that much, well above the pace needed to meet the Fed’s 2 percent annual inflation target.

On a year-over-year basis, overall consumer inflation, at 4.9 percent, has dropped significantly since peaking at 9.1 percent in June 2022, yet remains well above the Fed’s target level. Economic growth slowed to a tepid 1.1 percent annual rate from January through March.Cracks in the economy
The Fed has raised its benchmark interest rate 10 times in 14 months. The central bank’s policymakers want to slow the US economy — the world’s biggest — just enough to control price increases without causing a recession. But many economists have been sceptical and expected the United States to slip into a recession later this year.

Higher borrowing costs have dealt a blow to some key sectors of the economy, notably the housing market. Pounded by higher mortgage rates, sales of existing homes were down a sharp 22 percent in March from a year earlier. Investment in housing has cratered over the past year.
The number of Americans filing new claims for unemployment benefits jumped to a 1.5-year high last week to a seasonally adjusted 264,000 for the week ended May 6, the highest reading since October 2021. Economists polled by the Reuters news agency had forecast 245,000 claims for the latest week.Still, the job market, the cornerstone of the economy, has remained healthy, with the unemployment rate at 3.4 percent, a 54-year low.

Last week, the Fed signalled that it may now pause its interest rate hikes so that its policymakers can step back and assess the effect of higher rates on growth and inflation. Chair Jerome Powell also said the Fed would monitor other threats, including the recent turmoil in the banking sector, to determine whether to suspend its rate hikes.

Powell stressed his belief that the collapse of three large banks in the past six weeks will likely cause other banks to tighten lending to avoid similar fates. Such lending cutbacks, he added, will likely help slow the economy, cool inflation and lessen the need for the Fed to further raise rates.