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US wholesale prices fell the most in five years in April, with a historic drop in gauges measuring profit margins suggesting businesses have so far refrained from passing along the cost of higher tariffs.
The producer price index fell 0.5 per cent month-on-month in April, according to figures published by the Bureau of Labor Statistics on Thursday, from no change in March. That was the first monthly decline since October 2023 and the biggest drop since April 2020. Economists expected a 0.2 per cent increase.
“Core” PPI, which strips out volatile food and energy prices, dropped 0.4 per cent, the biggest decline most since 2015. The year-on-year increases in headline and core PPI eased to 2.4 per cent and 3.1 per cent, respectively.
PPI, which tracks changes in prices that businesses receive for their goods and services, was closely followed by economists this month, searching for signs of any potential impact that Donald Trump’s tariffs on US trading partners had on American businesses.
Although there were limited signs of surging inflation, Thursday’s data suggested US manufacturers and service providers were yet to pass the cost of tariffs on to consumers and profit margins were instead being squeezed.
The drop in PPI during April was largely due to a 0.7 per cent drop in services prices, their biggest monthly drop since the index began in 2009. The BLS said more than two-thirds of that decline could be traced to a margins for final demand trade services, an index that measures changes in margins received by wholesalers and retailers.
“We can see the start of the trade war hitting corporate margins here and I doubt it will be much longer until that is passed on to the consumer,” said Joe Brusuelas, chief economist at tax and consulting firm RSM US.
The PPI, which is often considered a leading indicator of inflation, follows figures published on Tuesday showed that the annual increase in the consumer price index dropped more than expected to 2.3 per cent in April.
Economists cautioned that most of the impact of Trump’s new import duties had yet to be felt. “This is a good month for cooling inflation, but tariffs are going to knock us off this course,” said Ryan Sweet, chief US economist at Oxford Economics.
Walmart warned on Thursday that it would not be able “to absorb all the pressure” from tariffs, which would result in “higher prices” for American consumers.
Sweet said the unexpectedly cool inflation reports “create a communication challenge” for the Federal Reserve, which has insisted that it needs to keep US interest rates on hold as it waits to see how tariffs will affect the world’s largest economy.
In other data on Thursday, retail sales rose 0.1 per cent in April. That was stronger than economists’ forecast for no growth, but down from a 1.7 per cent in March when consumers rushed to complete major purchases ahead of the new trade levies.
Industrial production was flat in April, weaker than the 0.2 per cent growth economists expected but an improvement from March’s 0.3 per cent contraction.
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