“If you’re at a stagflation camp, these data doesn’t check your paper,” said an expert in one market.
Wholesale inflation in April recorded its sharpest decline since the onset of the Covid-19 pandemic, indicating that US tariffs have not yet affected consumers.
Last month, the Producer Price Index (PPI), a measure of the price of goods and services paid by companies early in the supply chain, fell 0.5% from the upwardly adjusted zero percent recorded in March.
Consensus predictions suggested an increase of 0.2%.
Core wholesale prices, which omit the volatile energy and food categories and are considered more accurate inflation predictors, also fell by 0.4% in April. This declined from an upwardly revised 0.4% increase in March and a lower than economists’ expectations.
Core PPI inflation has eased from 4% to 3.1% year-on-year, in line with market watchers’ forecasts.
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Economists are able to signal pipeline inflation, so they monitor PPIs closely. The Federal Reserve closely monitors producer prices to contribute to the central bank’s preferred inflation report, Personal Consumption Expense (PCE) Price Index.
Estimates from Cleveland Fed’s Nowcasting Model Model show that PCE inflation is expected to be at 2.2% later this month.
Annual inflation slowed to 2.3%, lower than expected, the lowest level since February 2021. Core CPI inflation did not change at 2.8%.
These figures should erase concerns despite concerns from the economic climate of rising prices, rising unemployment and slowing growth, according to Jamie Cox, managing partner at Harris Financial Group.
“If you’re in a stagflation camp, these data are not reviewing your paper. Disinflation remains intact while growth is slow,” Cox said in a memo sent to the Epoch Times by email.
Inflation Watch
The latest influx of data suggests that higher inflation is still not yet realized, but the economist chorus says that potential negative effects of tariffs could begin to appear in hard data in the second half of 2025.
Other economic observers say inflation will likely re-accelerate, but the results are less disastrous than initially reported.
“It appears there is a high possibility that inflation will recover in the second half of 2025 as businesses take over the costs of tariffs,” Comerica Bank chief economist Bill Adams said in a memo sent in an email to the Epoch Times.
“However, after the reduction in tariff charges applied to most imports, the effect is less than it appeared a few weeks ago.”
Adams said tariff-related price pressure could be “manageable” for businesses and consumers than expected.
Reflecting the sentiment of Federal Reserve Chairman Jerome Powell, they said tariff-driven price pressure could be temporary.
Customers will be shopping at the Walmart store in Houston on August 4th, 2021. Brandon Bell/Getty Images
“It should be temporary, provided that the trade war escalates and the Fed does not cut prematurely, and its independence is not questioned,” they wrote.
“All this can reduce household inflation expectations from the current high levels, preventing self-realization.”
Many consumer surveys highlight the growing surprises among households over the potential for a revival of inflation.
The University of Michigan’s April Consumer Sentiment Index saw its first- and five-year inflation outlook rising to 6.5% and 4.4%, respectively.
These concerns could be justified based on a recent statement from Corporate America. Several big companies say they plan to raise prices in the coming months amid the blow from tariffs.
Walmart, which reported a decline in profits for the first quarter in its latest revenue report, said it needs to absorb tariff costs.
Last month, tool maker Stanley Black & Decker said he plans to raise single-digit prices across US retailers and introduce another hike later this year.
“With that in mind, we implemented an early price increase in April and notified customers that further price action is needed.”
What does this mean for the Fed?
A wave of positive economic data has led investors to push back interest rate forecasts.
According to Jeffrey Roach, Chief Economist at LPL Financial, retail sales data rose 0.1% in April, with the number revised to 1.7% in March and 1.7%.
“Stable consumer revenues need to support discretionary spending, and as long as the growth outlook remains stable, there is a greater likelihood that the Fed can remain on hold,” Roach said in a memo sent to the Epoch Times by email.
In a prepared statement on May 15, Powell said long-term interest rates are likely to rise amidst policy uncertainty and economic changes.
“High actual prices could reflect the possibility that inflation will continue to become volatile in the future than in the intercrisis period of the 2010s,” Powell told the Thomas Laubach Research Council in Washington.
“We could enter a period of more frequent and potentially more sustained supply shocks, which is a challenging challenge for the economy and the central bank.”
