MACRO: US producer price inflation surge to multi-year highs

• US producer prices rise more than forecast
• China's producer prices highest Since 2018

Today, investors eagerly awaited US producer price releases after Chinese factory inflation rose to its highest level since July 2018. The report was delayed after the Bureau of Labor Statistics' website crashed and showed that producer prices for final demand in the US rose 1 % from a month earlier in March, following a 0.5 % increase in February and way above analysts expectations 0.5 % advance. Cost for goods jumped 1.7% which is the highest increase ever recorded and was mainly caused by a 5.9 % increase of energy prices. More than a quarter of the goods price increase can be attributed to the 8.8% increase in gasoline prices. The indexes for diesel fuel, residential electric power, industrial chemicals, steel mill products, and processed poultry also moved higher. Meanwhile, cost for services rose 0.7 %, the third consecutive advance, mainly attributable to margins for final demand trade services. The core index, which excludes foods and energy, increased 0.7 %, also well above market projections of 0.2 %. Year-on-year, producer prices surged 4.2 %, which is the largest increase since September 2011, and the core index rose 3.1 %.

US producer price inflation has jumped to a 10-year high. Will CPI reading follow its footsteps? Source: XTB, Macrobond

Today's reading came in line with expectations of many investors regarding higher inflation as the economy reopens amid an improved public health environment and massive government funding. It also indicates that price pressures continue to increase as some surveys (e.g. ISM report) indicate that manufacturers potentially have a greater ability to pass higher costs onto consumers. This increases the risk of higher CPI readings in the near term and indicates the possibility of earlier changes in the Federal Reserve's policy.