April wholesale prices jumped nearly three times more than economists expected. The Iran war's oil shock is no longer just at the gas pump. It is moving through every layer of the economy.
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The Bureau of Labor Statistics released April's Producer Price Index on Wednesday morning. Final demand prices rose 1.4% for the month. Economists had expected 0.5%.
That 1.4% monthly jump is the biggest since March 2022. On a yearly basis, producer prices are up 6%. That is the highest reading since January 2023.
Goods prices surged 2% in April, led by a 15.6% spike in gasoline. Jet fuel, diesel, and industrial chemicals all climbed alongside it.
Yesterday, VonTrend covered April CPI hitting 3.8%, the highest since May 2023. That number measures what consumers pay at the register.
PPI measures what businesses pay before products reach the shelf. When producer prices run hotter than consumer prices, it means businesses are absorbing costs they will eventually pass along. Or their margins shrink.
Either outcome hurts stocks. Margin compression hits earnings. Price hikes hit demand. Both paths lead to the same place.
Before today's PPI, markets priced roughly a 30% chance of a Fed rate hike by year-end. After the report, traders pushed those odds above 50% for the first time since the hiking cycle ended in 2023.
Rate cuts are now completely off the table through the end of 2026. Most futures models show no cuts priced through 2027 either.
For context, three months ago, markets expected two or three rate cuts this year. The Iran war's oil shock has flipped that script entirely.
The Senate is expected to vote today to confirm Kevin Warsh as Federal Reserve chair. He was confirmed to the board 51-45 on Tuesday. If the chair vote passes, Warsh replaces Jerome Powell on Friday.
He walks into the job with 3.8% consumer inflation, 6% producer inflation, oil above $102 a barrel, and a market that now expects a rate hike. His first FOMC meeting is in June.
Every word of his opening statement will be parsed for signals. If he sounds hawkish, rate-sensitive stocks take another hit. If he sounds patient, the inflation trade stays on.
WTI crude settled at $102.18 on Wednesday, up 4.2% on the day. Brent rose 3.4% to $107.77.
The Iran war continues to disrupt supply through the Strait of Hormuz. Saudi Aramco's CEO has warned the market is losing roughly 100 million barrels of supply each week. As long as Hormuz stays restricted, the inflation pipeline stays full.
The S&P 500 hit a new all-time intraday high on Wednesday. The Nasdaq rose 0.9%. Semiconductors led the tape, powered by Nvidia's CEO joining the presidential delegation to Beijing.
The Dow told a different story. It dropped 225 points. Rate-sensitive sectors, from REITs to regional banks to dividend utilities, kept repricing lower.
The split tape is widening. Tech investors are riding the AI catalyst. Income investors and small-cap holders are watching inflation eat into their positions.
The new Fed chair will have to pick a side. Tolerate 6% producer inflation and let the market run. Or signal tighter policy and risk pulling the rug from under the only sector keeping indexes at all-time highs.
Watch Warsh's first public comments as chair. They will set the tone for the rest of the year.