US wholesale prices sank in April, logging their biggest monthly drop since Covid stifled the economy, as tariffs put a squeeze on profit margins, according to new data released Thursday.
The Producer Price Index, a closely watched measurement of wholesale inflation, showed Thursday that the prices paid to US producers dropped 0.5% in April from the month before, according to Bureau of Labor Statistics data.
On an annual basis, inflation slowed to 2.4% from March, which saw sharp upward revisions to the initial estimates. A 0.4% monthly decline and a 2.7% annual rate were revised up to 0% and 3.4%, respectively.
Economists were expecting monthly prices to rise in April by 0.2% and to slow to 2.4% on an annual basis, according to FactSet.
A driving force behind the downward monthly swing was a 1.7% plunge in trade services, a category that measures gross margins for wholesalers and retailers.
Although it’s a volatile category, the sharp downward swing in trade services indicates that companies’ margins are being eaten away by higher costs from President Donald Trump’s tariffs, Joe Brusuelas, chief economist at RSM US, told CNN on Thursday.
“We are beginning to see the impact of trade policy filtering into the hard data in such a way that it’s impossible to deny that it is now affecting revenues and profit margins for firms,” Brusuelas said.
Those higher costs will likely start spilling over to consumers soon, he said.
And the economy-powering consumers are already showing some signs of fatigue: Sales at US retailers slowed sharply in April to 0.1% after a surge of 1.7% in March, when shoppers rushed to beat the slew of new tariffs.
Increased volatility could keep interest rates elevated
Separately on Thursday, Federal Reserve Chair Jerome Powell warned that “supply shocks” could force the central bank to keep rates higher over the long term.
“We may be entering a period of more frequent, and potentially more persistent, supply shocks — a difficult challenge for the economy and for central banks,” Powell said.
He noted that “inflation could be more volatile going forward than in the inter-crisis period of the 2010s.”
On Tuesday, the latest Consumer Price Index data showed that overall inflation cooled further for the goods and services Americans commonly purchase. However, some economists pegged some of that softening to weaker demand.
Trump’s bevy of tariffs is widely expected to make items more expensive in the months to come and drive inflation higher.
PPI, which serves as a potential bellwether for retail-level inflation in the months ahead, is starting to show some of those pressures.