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Post: Economic Report: Wholesale prices surge 1.4% and point to high U.S. inflation through the spring

The numbers: The cost of wholesale goods and services jumped 1.4% in March largely because of more expensive gasoline and food, signaling that U.S. inflation is likely to stay near a 40-year high through the spring.

Economists polled by The Wall Street Journal had forecast a 1.1% gain.

The increase in wholesale prices last month was the largest since the government reformulated the index in 2009 and likely one of the biggest since the early 1980s.

Over the past year wholesale prices have climbed 11.2%, the government said Wednesday, up from 10% in the prior month. That’s also the highest level since the early 1980s.

The increase in so-called core wholesale prices, meanwhile, rose a sharp 0.9%. Wall Street had expected a 0.5% advance. The Federal Reserve views the core rate as a clearer window into inflation trends because it strips out volatile food and energy prices.

Yet the steep increase in March — suggesting inflationary pressures are still high — disappointed investors. In February, the core rate rose by the smallest amount in 15 months.

The higher core rate also takes some of the shine off a surprisingly small increase in a similar core measure in the better-known consumer price index published Tuesday.

Trends in wholesale prices often offer clues on the path of inflation more broadly — what consumers end up paying for goods and services. The PPI reflects what companies pay for supplies such as grains, fuel, metals, lumber, packaging and so forth.

Big picture: Inflation may be at or near a peak, economists say, but prices are likely to keep rising at an uncomfortable pace at least into early next year.

The Fed plans to move more rapidly to raise low U.S. interest rates to try to squelch inflation. Yet higher rates take a while to have an effect, especially when they have been so low for so long.

What’s complicating matters is the war in Ukraine and massive Covid lockdowns in China.

The Ukraine conflict has contributed to higher prices for oil and food while the disruptions in China could worsen already strained global supply chains. U.S. businesses get a lot of materials and finished products such as cell phones from China

Key details: The wholesale cost of goods jumped 2.3% last month, with more than half of the increased tied to energy. The cost of oil jumped to a 13-year high in March after the Russian invasion of Ukraine.

The good news is, price rises have leveled off in April and offered businesses and consumers a small amount of relief.

The wholesale cost of food rose 2.3% in March, the largest increase in a year. Prices at the grocery store have climbed at the fastest pace since 1981, a separate survey of consumer inflation shows.

Food cost rises might not level off for a while. Russia and Ukraine are two of the world’s biggest producers of grains such as wheat, corn and barley, whose supplies have been interrupted by the war. Ukraine’s grain production could fall as much as 40%.

The cost of services rose 0.9% in March.

The cost of partly finished goods and raw materials, meanwhile, both advanced in March. These prices have jumped around a lot lately but remain extremely high, offering little sign of an imminent and rapid slowdown in inflation.

Raw-material prices, for example. are up 41% in the past year.

Looking ahead: “Producer prices are an early warning sign of what households can expect in terms of consumer price inflation,” said senior economist Kurt Rankin of PNC Financial Services.

“Producer prices rose briskly even outside food and energy, showing increases are not limited to impacts from the Russian invasion.

“Not good. Higher than expected, with strong upward trends in food, energy, trade services, and transportation and warehousing,” said chief economist Scott Brown of Raymond James. ” Gasoline prices are off their peak in April, but this report shows broad-based inflation at the wholesale level.”

Market reaction: The Dow Jones Industrial Average
DJIA,
+0.11%

and S&P 500
SPX,
+0.18%

were rose in Wednesday trades after a negative start. Stock prices declined on Tuesday.

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