May 24, 2018

US PPI for final demand increases 0.1 pct in April

11 May 2018, 12:35 | Kenneth Drake

Top News: US shopper costs rose a modest 0.2 % in April

Wholesale prices tick up 0.1%

Oil prices were in flux and gave up earlier gains as investors took profit on a rally triggered by the potential disruption to crude flows from major exporter Iran in the face of USA sanctions.

USA shopper costs rose a modest 0.2 % in April, lifted by increased gasoline prices, an indication that inflation pressures stay muted. In the 12 months through April, the CPI increased 2.5 percent, the biggest gain since February 2017, after rising 2.4 percent in March.

The index for final demand less foods, energy, and trade services, also nudged up 0.1 percent last month, after increasing 0.4 percent in March.

The yield on 10-year Treasuries sank four basis points to 2.96 percent, the biggest tumble in two weeks.

USA wholesale prices edged up just 0.1 percent in April, held down by a big drop in food costs. The US Federal Reserve tracks a different inflation measure, which is now flirting with the Fed's 2% target.

In short, excluding food and energy, price gains slowed in April from earlier in the year.

Economists expect the core PCE price index, which had increased 1.6 per cent in February, to breach its target in May. Gasoline prices led the increase, growing 3.0%. The rise in oil prices this week on the back of President Donald Trump's announcement he would pull out of the Iran nuclear deal drove up Treasury yields this week ahead of the CPI report. Over the last 12 months, the all-items index rose 2.5%.

The food index was rose 0.3%.

Owners' equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, rose 0.3 per cent last month after a similar gain in March.

The April number was below the consensus estimate of 0.3% and followed a decline of 0.1% in March.

Among the categories where prices declined were airfares, new and used cars and trucks, and recreation.

Royce Mendes, senior economist at CIBC World Markets said that he expects the latest inflation data to weigh on a surging USA dollar, which should provide some near-term support for gold.

In another report on Thursday, the Labor Department's first-time applications for state unemployment benefits were unchanged at a seasonally adjusted 211,000 for the week ended May 5.

Competition for workers is expected to push up wage growth, which has remained moderate. The jobless rate is within striking distance of the Fed's forecast of 3.8 per cent by the end of this year.

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