More inflation to come as Producer Price Index soars in April
San José, CA – The day after the Consumer Price Index report rose to 3.8% as compared to a year ago, the Producer Price Index, or PPI, report on April prices paid by businesses came in even hotter. The monthly increase in producer prices in April as compared to March was 1.4%, almost three times what economists predicted. As compared to April a year ago, the PPI was 6% higher.
The increase in the PPI means that consumer prices will be heading even higher in the future. For example, the price of diesel fuel, used in trucking, farm and warehouse equipment, was up 12.6% in just one month, adding to the cost of food and almost all goods that are shipped by trucks. The wholesale cost of transport by truck rose 8.1% in April as compared to March. Air freight costs also rose, but by a “smaller” amount of 3.6% for the month.
Major companies such as Whirlpool, a maker of appliances, announced a 10% price increase in April, and another 4% to be imposed in July.
Parts of the PPI report also feed into the Personal Consumption Expenditure, or PCE, price report that is coming out May 28. The PCE price index is the inflation measure followed by the Federal Reserve Bank, which traditionally raises interest rates when inflation rises.
With inflation rising, bond prices are falling, since inflation erodes the fixed interest payments that bonds pay. This means that the interest rate on bonds is going up; for example, the ten-year U.S. Treasury bond before the war on Iran was 4.02%, and it is now 4.46%. The ten-year U.S. Treasury bond is a benchmark that impacts other loan interest rates. For example, the 30-year fixed rate mortgage was just below 6% right before the war started, is now at 6.45%. Rising mortgage interest rates mean larger loan payments, reducing even more the affordability of buying a home.