Worse Than Expected Again: Producer Prices Up 11%

US President Joe Biden speaks to members of the media prior to boarding Air Force One at Des Moines International Airport in Des Moines, Iowa, on April 12, 2022. (Photo by MANDEL NGAN / AFP) (Photo by MANDEL NGAN/AFP via Getty Images)
MANDEL NGAN/AFP via Getty Images

Prices charged by U.S. businesses were up 11 percent in April compared with a year ago, the fifth straight month of the government’s producer price inflation gauge running at or above 10 percent.

The Department of Labor said Thursday that its Producer Price Index for final demand rose 0.5 percent in April compared with a month earlier, in line with expectations. But there the results for earlier months were revised up, bringing the 12-month figure above economists’ expectations for a 10.7 percent rise.

The report for March was revised up to show a 1.6 percent gain from February and the February report was revised up from a 0.9 percent gain to 1.1 percent. This indicates that inflation has been running even hotter than the earlier reports indicated.

The index for core final demand PPI—which excludes food, energy, and trade services (a category measured by markups rather than prices)—rose 0.6 for the month. Compared with a year ago, this is up 6.9 percent, down just two-tenths of a point from the March reading, which was revised up from 7.0 to 7.1 percent.

Producer prices for goods rose 1.3 percent in April compared with March and were up . The March figure was left unchanged at 2.4 percent and the February figure was revised up to 2.2 percent to 2.3 percent. This slow down in price gains, however, was due to a slow down in the rise in energy prices and food prices. Excluding food and energy, goods prices rose one percent, down only a tick from March’s 1.1 percent.

Producer prices for final demand services were flat with the prior month. The February figure was revised up to show a 0.5 percent gain, up from 0.3 percent. The March figure was revised up to 1.2 percent from 0.9. Trade services margins fell 0.5 percent.

The Producer Price Index (PPI) is sometimes inaccurately described as an inflation index for wholesale prices. Although it was once called the wholesale price index, it has never been focused on wholesale prices. Instead, it is constructed by looking at what businesses that produce goods and services in the U.S. were paid for goods and services, while the better-known Consumer Price Index measures what consumers paid and includes both imports and a stand-in for home ownership called owners-equivalent of rent that isn’t counted in PPI.

“The Wholesale Price Index (WPI) was the name of the program from its inception in 1902 until 1978, when it was renamed the Producer Price Index,” the Bureau of Labor Statistics explains on its website. It explains that: “the term Wholesale Price Index was misleading in that the index never measured price change in the wholesale market.”

The PPI measures prices both for various stages of intermediate demand, businesses selling to other businesses, and final demand, which measures domestic producers selling goods and services to domestic end-users, typically government agencies, consumers, or businesses. The widely reported headline number for PPI is the final demand figure.

The PPI excludes imports and doesn’t count sales taxes, since those are paid to foreign producers and governments. It also includes export prices, which are excluded from CPI because they are paid by non-U.S. consumers.

The target set of goods and services included in the PPI is the entire marketed output of U.S. producers. This includes goods, services, and construction products purchased by other producers as inputs to their operations or as capital investment, goods and services purchased by consumers either directly from the service producer or indirectly from a retailer, and products sold as export and to government. The CPI looks at the set of goods and services purchased for consumption purposes by urban U.S. households, excluding business purchases for capital investment or as inputs to products, government purchases, and exports. The CPI also excludes prices not paid directly by consumers, such as medical bills paid for by government programs or insurers, that are included in PPI.

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