The U.S. inflation problem is getting worse
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America's inflation problem is getting worse, not better, as 2026 progresses. New wholesale price data — on the heels of Tuesday's consumer price report — confirm it.
Why it matters: The evidence of continued price pressures stretches far beyond the energy price spike that occurred following the Iran war, and suggests ongoing pressures across a range of goods and services.
- It is getting harder and harder to chalk up the inflationary impulse evident in a wide range of data solely to the one-time effects of tariffs and the blockade of the Strait of Hormuz.
- That makes the chance of a Federal Reserve interest rate cut at any point this year increasingly remote, barring a stark turnabout in the inflation trend or labor market conditions.
By the numbers: The Producer Price Index for final demand rose 1.4% in April alone, and is up 6% over the last 12 months.
- Even excluding volatile food, energy and trade services, the index was up a whopping 4.4% over the last year, the highest 12-month increase since 2023.
- Prices for services were up significantly, thanks to a 5% rise in transportation and warehousing prices — a sign that higher fuel prices are already having second-order effects on what it costs for other goods.
What they're saying: "[Wednesday's] report suggests that while the move higher in prices received by producers is primarily being driven by energy, we are also seeing a broader increase across other core components of the inflation basket," analyst Richard de Chazal of William Blair wrote in a note.
State of play: As Kevin Warsh prepares to take charge of the Fed, the economic environment is simply not cooperating with President Trump's desire for further interest rate cuts.
- Many of Warsh's soon-to-be colleagues are warning that the next policy move could be a rate increase.
- "I believe it will likely be important to maintain the current slightly restrictive monetary policy stance for some time," Boston Fed president Susan Collins said Wednesday morning at the Economic Club of Boston.
- "More than five years of above-target inflation has reduced my patience for 'looking through' another supply shock," she added. "And while it is not my most likely outlook, I could envision a scenario in which some policy tightening is needed to ensure that inflation returns durably to 2% in a timely manner."
Of note: The CME FedWatch tool, based on futures prices, now implies 34% odds that the Fed's target rate will end this year higher than it is now, versus 16% odds a week ago.
The bottom line: "For a new Fed chair who is keen to lower rates, this data represents a growing obstacle to that goal," de Chazal wrote.
