Wholesale inflation unexpectedly fell in April, experiencing its largest monthly decline in five years. The producer price index for final demand was down 0.5% month-over-month after a flat reading in March. This was lower than the expected 0.2% growth. On an annual basis, headline PPI increased 2.4%, down from 3.4% in March and below the 2.5% forecast.
Core PPI (excludes food and energy) fell 0.4% in April, down from 0.4% in March and lower than the expected 0.3% growth. This marks the first monthly decline since July and is the largest monthly decline in the series' history. On an annual basis, core PPI eased to 3.1% from 4.0% in March and was consistent with the forecast.
Producer Price Index: Finished Goods
The BLS shifted its focus to the "final demand" PPI series in 2014, but data for these series extend only back to November 2009 for headline PPI and April 2010 for core PPI. Since our analysis emphasizes longer-term trends, we continue to track the legacy PPI for finished goods, which the BLS still includes in its monthly updates. As a later overlay chart will illustrate, the final demand and finished goods indexes remain highly correlated.
In April, the PPI for finished goods fell 0.1% month-over-month, up from -1.3% in March. Year-over-year, headline PPI for finished goods slowed to 0.5% from 0.9% in March. Meanwhile, core PPI for finished goods was up 0.5% on the month, up from 0.2% in March. On an annual basis, core PPI for finished goods increased from 2.3% in March to 2.6% in April.
Producer Price Index (PPI) vs. Consumer Price Index (CPI)
Both PPI and CPI illustrate monthly price changes. However, as their names suggest, the Producer Price Index measures price changes from the producer perspective whereas the Consumer Price Index measures price changes from the consumer perspective. PPI is thought to be a leading indicator of consumer inflation because, for the most part, when producers pay more for goods and services they are likely to pass along those higher costs to the consumer. With that being said, during the 2020 recession producers were unable to pass along price increases, demonstrating the higher volatility of core PPI than core CPI. This relationship is further illustrated in the next chart.
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