Prices for businesses spike, adding to growing inflations concerns

The prices that businesses are paying for goods have risen sharply, according to data released Wednesday, the latest data point showing that knock-on effects from the Iran war are rapidly rippling across the economy.

Wholesale business inflation surged to 6% in April on a yearly basis, according to data released by the Bureau of Labor Statistics, up from 4.3% in March.

That data, known as the producer price index, or PPI, also found that business costs rose 1.4% in April on a monthly basis — almost three times more than had been expected.

“The April increase is the largest advance since rising 1.7 percent in March 2022,” the agency said in a statement.

Shipping traffic in the Strait of Hormuz remains largely frozen, choking off one of the world’s primary oil shipment corridors. Oil futures have remained elevated, while gas prices have jumped across the United States.

Since the start of the war, oil and retail gas prices have surged more than 50%.

Energy analysts have warned that this could mean high prices for months to come, costs that can be felt throughout the economy.

The higher-than-expected wholesale inflation reading comes just one day after the consumer price index, which measures prices paid by consumers, rose to 3.8% from a year ago — its highest level in nearly three years and a rate that now outpaces wage growth.

Energy accounted for the majority, but not all, of the rise in that index.

Wednesday’s report offers a variety of indications that energy inputs are pushing up prices for businesses throughout their supply chains. The PPI report does not measure the price that consumers pay, but it is sometimes viewed by economists as an early indicator of inflation. The soaring prices reported in the PPI data could be passed down in part to shoppers.

Core PPI, which excludes often-volatile food and energy costs, also surged in April to 5.2%. That could indicate that energy inflation from the ongoing U.S.-Israeli war with Iran is bleeding into other categories.

Energy prices alone jumped 7.8% in April, according to BLS.

But it also warned of spiking prices in other categories.

“The indexes for truck transportation of freight; fuels and lubricants retailing; health, beauty, and optical goods retailing; chemicals and allied products wholesaling; and legal services also moved higher,” BLS said.

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Services costs also rose the most since 2023, up 1.2% from March. Transportation and warehousing services jumped 3.4% from March to April, indicating the higher fuel costs may already be hitting businesses’ bottom lines.

Wednesday’s reading was “Tabasco hot,” said Peter Boockvar, chief investment officer of One Point BFG Wealth Partners.

“Not surprisingly, the nearly 16% rise in gasoline prices drove the rise in goods prices, followed by jet fuel, diesel fuel, fresh & dry vegetables, and industrial chemicals,” Boockvar added.

“Bottom line, while more so supply shock driven…higher prices are higher prices to businesses and consumers as the economic pain feels the same,” he said.

Although the consumer price index and producer price index don’t line up evenly in terms of costs, “these numbers strongly suggest that higher consumer inflation is still coming through the pipeline,” Mohamed El-Erian, chief economic adviser at global insurer Allianz, said on X.

U.S. Treasury yields, which were already elevated, jumped on the news. The 10-year U.S. government bond, which heavily influences consumer borrowing rates, rose as high as 4.49%, its highest level since July.

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