April’s U.S. PPI Confirms the Shift: Disinflation Is Back, But at What Cost?

Today’s Producer Price Index (PPI) release delivered a clear message: disinflation is here, but so is demand softness. April PPI fell 0.5% MoM, the sharpest drop in over 4 years. The decline was driven by a record-breaking 0.7% fall in services, particularly in trade margins like machinery wholesaling and airline fares. Core PPI (less food, energy, and trade) also declined 0.1%, the first contraction since the depths of the pandemic.

This comes just days after retail control group sales unexpectedly declined, real consumption fell by –0.7%, and industrial production flatlined. Labor markets haven’t cracked yet, but initial claims and the insured unemployment rate are grinding higher. If April was a soft patch, May could be the beginning of something more structural.

The broader picture now shows:

• Core inflation is sticky (CPI ~2.8%), but goods prices are weakening.

• Tariff pass-through remains muted, consistent with the some experts views that foreign exporters are absorbing costs.

• Chicago Fed CARTS correctly forecast the sharp drop in real retail sales.

• Empire State manufacturing remains deep in contraction, with forward orders only mildly recovering.

• PPI confirms margin compression, especially in wholesale and service sectors a likely sign of weakening pricing power.

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The U.S. economy is not in recession, but the evidence is building toward a stagflation-lite environment real growth is stalling while nominal inflation decays more slowly.

Markets have already begun to respond. The yield curve is bear steepening, with 10yr rates rising on fiscal risk and long-term inflation uncertainty, even as short-end yields hold firm. The Fed is boxed in, unable to cut with sticky services inflation, but increasingly pressured as real growth erodes.

Today’s PPI confirms the pivot toward disinflation but it’s not driven by supply healing or productivity. It’s demand erosion. If this continues into June, the Fed will be forced to shift from patience to preemption.