This article was originally published by Tyler Durden at ZeroHedge. 

Ahead of tomorrow’s CPI, traders are eyeing this morning’s Producer Prices for any hints that the disinflation trend will return…or not.

The answer is “not!”

April Producer Prices rose 0.5% MoM (vs +0.3% exp), with March’s +0.2% MoM revised down to -0.1% MoM. The downward revision did not stop the YoY read rising to 2.2% (from +2.1% in March)…

Source: Bloomberg

This is the highest YoY read since April 2023 and is the fourth hotter than expected headline PPI print…

Source: Bloomberg

Producer Prices have been aggressively downwardly revised for 4 of the last 7 months…

Source: Bloomberg

Services costs soared, dominating April’s PPI gains with Energy the second most important factor. Food prices actually declined on a MoM basis.

Source: Bloomberg

On a YoY basis, the headline PPI’s rise was dominated by Services (rising at their hottest since July 2023). For the first time since Feb 2023, none of the underlying factors were negative on a YoY basis…

Source: Bloomberg

After last month’s farcical ‘seasonally adjusted’ gasoline price, April saw the PPI Gasoline index rise (with actual prices at the pump) but still has a long way to go…

Source: Bloomberg

Core PPI was worse – rising 0.5% MoM (more than double the +0.2% MoM expected) – which pushed the Core PPI YoY up to +2.4%…

Source: Bloomberg

And finally, US PPI Final Demand Less Foods Energy and Trade Services rose by 0.4% MoM and 3.1% YoY (the highest in 12 months).

Worse still the pipeline for primary PPI is not good as intermediate demand is starting to accelerate…

Source: Bloomberg

Here are Wall Street’s reactions to PPI:

Chris Larkin at E*Trade from Morgan Stanley:

Sticky inflation looked downright stuck this morning after a much hotter-than-expected inflation reading. But with last month’s numbers revised lower, this report may not have been as much of an upside shock as it first appeared to be.
Right or wrong, the CPI tends to have a bigger short-term impact on the markets, so the picture could look much different 24 hours from now. But if the CPI also comes in above expectations, the interest rate picture may be thrown into doubt.

Bespoke Investment Group:

The results of April’s PPI showed a hotter-than-expected m/m reading. That’s the bad news. On a y/y basis, though, the readings were much closer to expectations as March’s report was revised down to negative 0.1% on both a headline and core basis.”

Chris Zaccarelli at Independent Advisor Alliance:

This week is important for markets because they are worried about inflation and this morning’s producer price index hasn’t done anything to assuage those fears.
The most important data release is tomorrow’s CPI print because the Fed’s dual mandate is based on CPI and unemployment, with the former being what the Fed is solely focused on right now.
We believe that the stock market will move higher throughout the year on strong corporate profits and consumer spending, but volatility is likely to spike in the meantime, because the inflation data is going to keep the Fed on edge.

Quincy Krosby at LPL Financial:

Moreover, this report underscores Fed concerns that the path of disinflation has stalled, requiring a higher-for-longer policy stance to combat seemingly entrenched inflation.
An overriding question — and potential dilemma — hovering over markets is whether the broader economic landscape is softening at the same time inflation inches higher, making the Fed’s job increasingly difficult.

Bill Adams at Comerica Bank:

Between an upside surprise and downward revisions to prior data, the trend in total PPI was slightly higher than expected in April.
The PPI report suggests upside risk to the April CPI report, which will come out tomorrow.
At the margin the Fed will see the PPI report as another reason to slow-roll interest rate cuts.

Paul Ashworth at Capital Economics:

These days we mostly care about what the PPI means for the Fed’s preferred PCE deflator measure of core consumer price inflation.
In that respect, April’s news was mixed but, on balance, encouraging. The bad news is that PPI portfolio management prices increased by 3.9% m/m. But that was more than outweighed by the good news. We’ll know more after the release of April’s CPI tomorrow.

Scott Helfstein at Global X:

Inflation and the Fed are less important than growth, and companies have adjusted to the new reality of higher prices and continue to look for technology solutions to manage for profit.
The last mile on inflation was always going to be the hardest, but we should be comfortable with these numbers.

Over the past month, ‘higher prices’ have dominated ‘lower prices’ in recent survey data…

Higher producer prices:

• New York Empire manufacturing price paid advanced to 33.7 from 28.7.
• Philadelphia Fed manufacturing reported prices paid gained to 23.0 from 3.7 in March.
• Philadelphia Fed non-manufacturing prices paid rose to 31.0 from 26.6 in the prior month.
• Richmond Fed services prices paid rose to 6.11 from 5.43 in March.
• Kansas City Fed manufacturing prices paid advanced to 18 from 17.
• Kansas City Fed services input price growth continued to outpace selling prices.
• S&P Global manufacturing input cost inflation quickened to hint at sustained near-term upward pressure on selling prices.
• ISM Manufacturing prices paid gained to 60.9, the highest since June 2022, from 55.8 in March.
• ISM Services prices paid notched up to 59.2, the highest since January, from 53.4 in March.

Lower producer prices:

• New York Fed Services prices paid fell to 53.4 from 55.1 in March.
• Richmond Fed manufacturing growth rates of prices paid dipped to 2.79 from 3.22 in March
• Dallas Fed Manufacturing outlook reported prices paid for raw materials dropped to 11.2 from 21.1 in the prior month.
• Dallas service sector input prices index nudged down to 28.8 from 30.4 in the prior month.
• S&P Global Service saw input costs slowed from six-month highs in March.

Do you see the ‘flation’ now, Jay?

So, no, The Fed does not have inflation under control.