Supply Chain Inflation Stagnates, Fed Chair Powell Rules Out Rate Hikes 

The US Producer Price Index witnessed a 0.5% month-over-month increase in April 2024, representing a significant change from the 0.1% decrease observed in March, revised down from earlier reports. The April uptick surpassed the anticipated 0.3% rise. 

Service prices saw their biggest jump since July, climbing 0.6% after a revised 0.1% decrease the previous month. A 3.9% surge in the cost of portfolio management significantly contributed to the increase. Price rises also occurred in machinery and equipment, wholesale trade, residential real estate services, automobile retail, guestroom rentals, and freight trucking. Goods prices improved with a 0.4% gain, rebounding from a 0.2% drop in March, largely driven by a substantial 5.4% increase in gasoline prices. Diesel fuel, chicken eggs, electric power, and nonferrous metals also saw price increases. Notably, core producer prices, excluding volatile items, escalated by 0.5%, markedly exceeding the predicted 0.2% rise. 

On an annual basis, the Producer Price Index climbed 2.2% in April, marking a 12-month high while aligning with market expectations. Excluding the volatile food and energy sectors, the core PPI rose 2.4% in April, also meeting market expectations. The previous reading was revised down to 2.1% from 2.4%.  

During an event hosted by the Foreign Bankers’ Association, where he was joined by European Central Bank Governing Council member Klaas Knot, Federal Reserve Chair Jerome Powell acknowledged the lack of progress in taming inflation during the first quarter, stating, “I wouldn’t call it hot, I would call it sort of mixed.” 

Referring to the new wholesale inflation data, Powell expressed his view that the appropriate approach would be “keeping policy at the current rate for longer than had been thought.” However, he reiterated that the Federal Reserve does not expect to raise interest rates further. 

In the wake of the PPI report, the dollar index experienced a decline, dropping to 105 on Tuesday. Market participants now turn their attention to the highly anticipated Consumer Price Index data scheduled for release tomorrow. Initially, the probability of a Federal Reserve rate cut fluctuated, but ultimately reverted to levels similar to those seen prior to the PPI release, with odds standing at approximately 65% for September and 78% for November. 

(Dollar Index Weekly Chart) 

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