US: Upside surprise in April PPI

• The first of three inflation reports this week, the April producer price index (PPI), surprised to the upside, with both the headline and core rising 0.5% on the month, although there were downward revisions to some prior months.
• Energy was up notably on the month (2.0%), broadly as expected, while food unexpectedly contracted on the month (-0.7%). Excluding food and energy, today’s core reading was the firmest since last July.
• On a year-over-year basis, headline PPI inflation firmed to 2.2%, while core PPI inflation held steady at 2.4%. Within the core, final demand services rose 0.6% in April, while final demand goods were up 0.3%—both firmer than anticipated—whereas construction rose a softer-than-expected 0.1%.
• Some “pipeline pressures” can show up in PPI first and then gradually translate into consumer prices over time; likely more relevant in the near term are broad macro dynamics that suggest some cooling in an economy that is still running above potential and with a still tight labour market.
• Some PPI measures do feed directly into core PCE tracking estimates; …financial services were strong, while airfares point to a contraction; and medical costs were moderate overall.

(Source: JPMorgan)