U.S. wholesale prices fell the highest in the five years in April, with a drop in measure of profit margins, indicating that businesses have not exceeded higher tariff costs so far.
The producer price index fell 0.5% in April, according to data released by the Bureau of Labor Statistics on Thursday, from March. That was the first monthly decline since October 2023 and the biggest decline since April 2020. Economists are expected to grow by 0.2%.
Deprived of the “core” of volatile food and energy prices, PPI fell by 0.4%, the biggest drop since 2015. Year-on-year growth of headlines and core PPI fell to 2.4% and 3.1% respectively.
PPI tracks changes in prices for businesses receiving from their goods and services, with economists this month following behind, looking for any potential impact of Donald Trump on tariffs on U.S. businesses by trading partners.
Despite limited signs of surge in inflation, Thursday’s data suggests that U.S. manufacturers and service providers have not transferred tariff costs to consumers, while profit margins are being squeezed.
The decline in PPI during April was mainly due to a 0.7% decline in service prices, which has seen its biggest monthly decline since the index in 2009. More than two-thirds of this decline can be traced to the profit margins of ultimate demand for trade services, a index that measures changes in profit margins received by Whitel and retailers, BLS said.
"We can see the beginning of the trade war hitting the company's profits, and I doubt it will take longer until it's passed on to consumers," said Joe Brusuelas, chief economist at tax and consulting firm RSM US.
PPI is often considered a major indicator of inflation, following data released on Tuesday that the annual gains in the Consumer Price Index fell to 2.3% in April.
Economists warn that much of the impact of Trump’s new import duties has not been affected yet. "It's a good month to cool inflation, but tariffs will lift us out of this course," said Ryan Sweet, chief U.S. economist at Oxford Economics.
Walmart warned Thursday that this would not “absorb all the pressure” tariffs, which would result in “higher prices” for U.S. consumers.
Sweet said the unexpected calm inflation report “provoked communication challenges for the Fed”, and the reserve insisted it needed to keep our interest rates on hold as it awaits how tariffs will affect the world’s largest economy.
In other data on Thursday, retail sales rose 0.1% in April. That's stronger than economists' forecasts for no growth, but it's down from 1.7% in March when consumers are eager to complete large-scale purchases before new trade taxes.
Industrial production remained flat in April, weaker than growth economists expected 0.2%, but improved compared to the March contraction.