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It’s not as if yesterday’s official report on U.S. wholesale inflation for April was as troubling as the consumer price figures released the day before. It’s just that it was a marked contrast to the very good previous set of wholesale price figures (the Producer Price Index, or PPI) that came in for March.

At the same time, I keep growing convinced that the PPI results are only secondary for puzzling out the U.S. inflation picture and forecast. Sure, if businesses have to pay higher prices for the goods and services they purchase in order to turn out goods and services for their final customers, they’ll face greater pressures to raise consumer prices.

But as I’ve explained, the extent to which businesses can pass those costs on depends on the spending power of their customers. The fact that inflation at the retail level remains so stubbornly high reveals that they can continue hiking prices for consumers whether their own costs are mounting or not.

As with the latest data on consumer inflation (the Consumer Price Index, or CPI), the worst aspect of the new PPI report has to do with the monthly heat-up of wholesale prices it shows.

Headline wholesale inflation rose sequentially by 0.23 percent in April – the highest monthly increase since January, and the biggest monthly acceleration (0.60 percentage points over March’s worse-than-originally-reported 0.37 percent drop) since January’s 0.72 percentage point change. It’s of some comfort that the revisions for the previous three months were slightly positive.

Core PPI strips out food and energy prices (because they’re volatile for reasons supposedly having little to do with the economy’s vulnerability to inflation) along with a logistics category called “trade services.” And it too quickened sequentially in April, from March’s marginal 0.07 percent increase to one of 0.18 percent.

This result snapped a two-month period of cooling, and revisions were moderately negative.

Meanwhile, baseline analysis makes clear that annual PPI results that look good on the surface still point to significant business confidence that customers retain plenty of purchasing power left, and that therefore they have plenty of pricing power left.

Headline PPI in April rose 2.38 percent on an annual basis – both the weakest rate since the 1.68 percent of January, 2021, and a big decline from March’s 2.75 percent increase (which was revised down from 2.79 percent). Even better, this yearly slowdown was the tenth in a row.

But that January, 2021 annual increase was coming off a PPI rise between January, 2019 and January, 2020 of just 1.97 percent. So during that latter year (ending just before the CCP Virus arrived stateside in force and began distorting the economy), wholesale inflation was increasing at a sluggish and steady pace. In other words, business’ views of its pricing power weren’t changing much, and indeed, that had been the case for decades before this current bout of inflation.

The baseline figure for the new April results, however, was 11.08 percent. The clear implication: After jacking up prices spectacularly between April, 2021 and April, 2022, businesses felt free over the following year to hike them at a rate that had slowed, but was still abnormally fast by pre-pandemic standards.

Ditto on nearly every count for core PPI. This measure of wholesale inflation was up annually in April by 3.37 percent – the best result since the 3.15 percent of March, 2021. The deceleration from March’s 3.70 percent (revised just a bit upward from the initially reported 3.67 percent) was encouraging, too – even though the “win streak” only dates from February.

Again, however, the March, 2021 baseline figure was just one percent – because wholesale prices began falling in absolute terms in March, 2020 – as the pandemic began hammering economic activity and thus the demand for goods and services. In early 2021, therefore, businesses were displaying some renewed optimism in their wholesale pricing power for core goods and services, but their enthusiasm was decidedly curbed.

The new April baseline? A robust 6.74 percent. To be sure, that’s a sizable improvement over the March, 2023 results – when the baseline for the 3.70 percent yearly worsening of the PPI followed a previous year’s jump of an even higher 7.06 percent. But I’m still more impressed by how strong business pricing power confidence remains.

As usual, one month’s worth of data does not a trend make – whether we’re talking monthly or annual changes. But over the last year, we’ve seen a stretch of historically steep Federal Reserve rate hikes and a roughly simultaneous reversal of the Fed’s stimulative bond-buying program (in which the unprecedented “quantitative easing,” or QE, pursued since Global Financial Crisis days has turned into “quantitative tightening,” or QT).

If both wholesale and consumer inflation still remain as stubborn as they have, those are signs that they’ll persist until the economy slows dramatically going forward, and even until these central bank policies actually do manage to trigger a recession.