Prices paid to US producers unexpectedly declined in April by the most in five years, largely reflecting a slump in margins, suggesting companies are absorbing some of the hit from higher tariffs.
The 0.5% decrease in the producer price index followed no change in March, Bureau of Labor Statistics data showed Thursday. The median forecast in a Bloomberg survey of economists called for a 0.2% gain. Excluding food and energy, the PPI declined 0.4% — the most since 2015.
Stripping out food, energy and trade, a less-volatile measure favored by many economists, prices fell 0.1%, the first decline in five years. Compared with a year ago, the gauge rose 2.9%.
The figures suggest American manufacturers and service providers are so far refraining from passing along higher US duties on imports. The impact on consumers has also been modest even as producers are feeling the pinch from aggressive levies on imported materials and other inputs.
Business leaders are wrestling with how best to mitigate the impact of higher tariffs in a frequently changing policy environment. The latest Federal Reserve Bank of Atlanta business inflation expectations survey showed fewer than one in five firms said they would be able to fully pass on a 10% increase in costs.
Some businesses have been absorbing some of the extra costs in an effort to avoid a pullback in demand at a time when consumers are already feeling jittery about the economy. Consumer sentiment has slumped, and a separate report out Thursday showed retail sales barely rose.
See also: US retail sales barely rise, suggesting some spending pullback
After a slew of economic reports, Treasuries extended the rally as traders boosted their expectations of Fed rate cuts. The dollar remained lower, while the S&P futures pared some earlier losses.
Automaker Stellantis NV is offering discounts on its vehicles, while Hyundai Motor Co. is holding prices steady until June. The pricing actions show how some of the largest carmakers are trying to calm worries that tariffs on imported cars will drive up prices by thousands of dollars.
At the same time, other retailers anticipate shoppers will experience higher prices. Walmart Inc., after delivering another quarter of solid sales and earnings growth, cautioned that tariffs and increasing economic turbulence means the retailer expects to begin raising some prices this month.
See also: US inflation comes in softer than forecast for a third month
For companies that are hiking prices, the risk is the action may result in lost sales. However, not doing so poses a risk to profit margins. Many are also seeking other ways to cut costs or striving to boost productivity.
The PPI report showed goods prices excluding food and energy increased 0.4% in April. The cost of business equipment, including computers and industrial material-handling machinery, accelerated.
Food prices dropped for a second month as the cost of eggs retreated more than 39%. Energy costs decreased for a third month.
Final-demand services prices decreased 0.7%, the most in data going back to 2009. Over 40% of the decrease was attributed to declines in margins for machinery and vehicle wholesaling.
Analysts also pay close attention to the PPI because some of its components are used to calculate the Fed’s preferred measure of inflation. Those categories were largely weaker due to a slump in portfolio management and airfares.
Health care categories moved higher. The personal consumption expenditures report for April will be published later this month.
While increased tariffs risk driving costs higher, subdued prices of many commodities may help temper the degree of pass-through to consumers and customers of the nation’s producers.
The costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, edged higher after falling in March. Unprocessed goods prices fell sharply on cheaper food and energy.
