The numbers: U.S. wholesale prices increased sharply again in April and signaled that more inflation is bubbling up in the U.S. economy, just a day after another government report showed the cost of living rose at the fastest pace in 13 years.
The producer price index jumped 0.6% last month, the government said Thursday . Economists polled by Dow Jones and The Wall Street Journal had forecast a 0.3% gain.
What’s more, the rate of wholesale inflation in the past 12 months climbed to 6.2% from 4.2% in the prior month. That’s the highest level since the index was reformulated in 2009.
Back then a record spike in oil prices drove most of the increase in wholesale prices. Now the cost of many raw and partly finished goods are rising, ranging from farm crops to precious metals to computer chips.
Prices for a variety of goods and services have soared this year after as the economy recovered from the coronavirus pandemic. Massive government financial aid to Americans, rising vaccination rates, and falling coronavirus cases have underpinned a rapid recovery and businesses can’t keep up with demand.
The Federal Reserve, the nation’s guardian against high inflation, insists t he price surge is a temporary phenomenon tied to the reopening of the economy . Top central bankers say inflation will fade by next year and settle around the Fed’s 2% goal.
Investors aren’t entirely sure. Stocks sank Wednesday after t he consumer price index posted its biggest one-month increase since 200 9.
What happened: About two-thirds of the increase in wholesale prices last month was concentrated in services such as air travel, medical care, financial advice, retailing and transportation. Vaccinated Americans are going out more and doing things they avoided during the pandemic.
Wholesale food prices also rose sharply in April, up 2.1%. Rising prices of corn and other farm goods are expected to raise the cost of groceries in the coming months.
The cost of energy fell in April for the first time since last fall, but prices are on the rise again and adding to inflation. More people are driving and that’s pushing up prices.
The core rate of wholesale inflation, meanwhile, also rose by 0.7% last month. The core rate is a less volatile measure that strips out food, energy and trade margins. It tends to give a more accurate picture of inflationary trends.
The increase in the core rate over the past 12 months moved to 4.6% from 3.1%. That’s the biggest gain since the government first began calculating the rate in 2014.
The cost of raw and partly finished goods in the earlier stages of production are also climbing.
The cost of partly finished goods rose 1.6% in April, putting the increase over the past year at 18.4%.
Raw-material wholesale prices sank 3.8% last month, but they’ve also risen sharply in the past year. They’ve climbed almost 58% in the past 12 months.
Big picture : Rising wholesale prices aren’t always a sign of future inflation. Companies raise or lower prices for a number of reasons and they don’t always pass higher wholesale costs onto customers.
This time is different. Wholesale prices began to rise sharply last year in a clear sign that inflation more broadly was about to surge. Now some of those costs are being passed onto consumers.
The big question is how long it lasts and whether some of the inflation gets embedded into the economy. The Federal Reserve might have to raise interest rates sooner than it plans and risk short-circuiting the economic recovery if inflation doesn’t subside like it predicts by early next year.
What they are saying? “There is only so much that producers can absorb before they begin to share the pain with the consumer level and that has already begun,” said senior economist Jennifer Lee of BMO Capital Markets.
Market reaction: The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.72% and S&P 500 /zigman2/quotes/210599714/realtime SPX -0.28% set to open mixed in Thursday trades. Stocks sank on Wednesday after the rate of inflation rose to the highest level in 13 years .