Yields Spike As Producer Prices Explode Higher In April

After yesterday’s hotter than expected CPI (driven in large part by Energy, but seeing some contagion into Services costs), this morning’s Producer Price print for April was expected to show a major surge in annual wholesale inflation.

With the eight straight monthly increase, PPI rose by a massive 1.4% MoM (vs +0.5% MoM exp) – the biggest MoM jump since March 2022, lifting PPI by a stunning 6.0% YoY (vs 4.8% YoY exp). That is the hottest PPI YoY since Dec 2022…

Source: Bloomberg

Services and Energy saw the biggest rise (while construction costs actually deflated very modestly)…

Core Producer Prices spiked 1.0% MoM (more than triple the +0.3% exp) smashing Core PPI YoY up 5.2% (also the hottest since Dec 2022)…

Source: Bloomberg

And finally, one could argue this is as bad as it gets for the energy component as oil prices have stabilized…

Source: Bloomberg

But of course, the pipeline of those energy costs is perhaps only just starting to trickle into the rest of the economy.

PPI triggered a spike in 2Y yields…

Now back above 4.00% at their highest since March with the market now pricing in a 50% chance of one rate-hike in 2026…

It appears any chance of Warsh cutting rates (as per Trump’s expectations) are off the table… for now.

Finally, there is perhaps a silver lining from this ugly PPI report. Other than airfares (which rose 3%) the components that feed through into PCE inflation were pretty tame; portfolio management fees dropped 2.4% and the various medical-care components showed a maximum rise of 0.3%.

That may mitigate the impact of the report, but it’s still hard to totally ignore the risk that inflation becomes a more pressing concern moving forward.