Data on producer prices shows that wholesale inflation pressure rose mildly in March but remain generally subdued in the economy. Industry detail showed that downward pressure in trucking rates continued in April, led by the fourth consecutive monthly decline in long-distance truckload rates.
The Bureau of Labor Statistics reported that the producer price index (PPI) rose 0.2 percent in April from March’s levels. This falls short of consensus estimates of a 0.3 percent gain and follows a 0.6 percent gain in the previous month. As was the case in March, much of the gain during the month was driven by energy prices, which rose 1.8 percent. However, this was offset by a 1.1 percent decline in food prices and a 0.5 percent fall in trade service prices in April. The core PPI, which excludes the often-volatile energy, food and trade services components of wholesale prices, rose by 0.4 percent as year-over-year growth climbed to 2.2 percent
Market watchers and policymakers typically use the PPI to gain some insight into what the underlying pressures of inflation are in the economy. The PPI measures the prices that businesses receive for the goods and services that they provide, and is often seen as a bellwether of upcoming increases in consumer prices. This morning’s core PPI results would suggest that overall inflation may be stabilizing after softening considerably since the end of 2018.
Long-distance truckload rates keep falling
Industry detail in the April PPI data showed that rates in the trucking industry continued to slide from the multi-year highs seen in mid-2018. Producer prices for General Freight Trucking fell 0.6 percent in April, following declines of 1.1 percent and 0.3 percent decline in March and February. Year-over-year growth in overall trucking rates has now fallen to 4.9 percent, marking the slowest pace of rate inflation since the end of 2017.
Details in the trucking industry show that the weakness in truckload rates continues to stem from the long-distance side of the industry. Full truckload long-distance rates followed up March’s plunge by dropping by 0.9 percent in April. This marks the fourth consecutive monthly decline in long-distance full truckload rates as year-over-year growth tumbled to 3.8 percent. Local trucking rates also declined during the month, but fell by a more modest 0.5 percent as yearly growth remained strong at 9.3 percent. Long-distance less-than-truckload (LTL) rates were unchanged in April, though year-over-year growth slipped slightly to 3.9 percent.
Behind the Numbers
April’s headline results were roughly in line with expectations, though the increase in core wholesale prices was noticeably stronger than expected. From a monetary policy standpoint, inflation data from both the PPI and consumer prices had softened significantly in recent months, opening the door for a potential interest rate cut by the Federal Reserve to help stimulate inflation. However, the surprisingly strong GDP results from the first quarter and firming inflation trends would suggest that the Fed is likely to hold on making a change in its current policy. For the time being, growth in the overall economy is proceeding at a healthy pace, leaving little reason to add additional monetary stimulus into the mix.
On the trucking side, the decline in PPI trucking data is a mix of both demand and supply conditions, both of which are currently putting downward pressure on rates in the industry. Carriers spent the better part of 2018 adding capacity in the industry in an effort to keep up with what was at the time a strong economic expansion. This increased capacity has been met with slowing demand growth in the freight economy, which sputtered during the first quarter despite the blockbuster GDP results. It is likely that freight activity will begin to pick up in upcoming months, but the current trend of decelerating rate inflation is likely to continue, as the gains in volume will likely not be enough to fill all of the additional capacity in the market. It is worth noting that historically, PPI data for trucking grows approximately 2.0-2.5 percent each year, so the current pace of growth is still fairly strong. As such, much of the recent decline can be viewed as a reset in the industry after 2018’s historically strong performance, and rates have further to go before things are back to normal.
Ibrahiim Bayaan is FreightWaves’ Chief Economist. He writes regularly on all aspects of the economy and provides context with original research and analytics on freight market trends. Never miss his commentary by subscribing.