April producer prices calmed fears of accelerating inflation
Economic commentary by Jakub Seidler, Chief Economist of the CBA
Producer prices in April looked relatively favourable, with the jump in crop prices from March correcting and prices falling noticeably month-on-month. Industrial producer prices rose modestly month-over-month, in line with analysts' expectations, but much of this was attributable to volatile energy prices. Services prices also rose modestly month-on-month, but as in the previous month, growth was in line with normal pre-inflationary trends, although growth remained more dynamic for some service components. Thus, today's figures provide some modest optimism that the jump in food prices recorded in April could be slightly corrected, while at the same time food prices fell again month-on-month. Despite this, however, we believe that the CNB will be more cautious in terms of further monetary policy settings and will cut rates only after the traditional quaters cuts from June onwards.
Industrial producer prices rose by 0.2% mom in April, in line with analysts' estimates. On a comparable basis, the annual growth rate was 1.4% (Chart 1a), the first annual increase this year. However, the details show that energy prices, especially petroleum products, contributed a large part of the month-on-month growth, reacting to higher oil prices on world markets. Also, the year-on-year acceleration in producer prices to 1.4% was mainly driven by energy and its lower comparison base. On the positive side, after the inflationary effect of food producer prices in March, this trend reversed in April, with food producer prices again declining marginally month-on-month. At the same time, the link between the development of food prices in the consumer basket and the development of food producer prices is relatively close and is thus another broadly positive signal in the context of the April rise in food prices.
Agricultural producer prices in April corrected their strong month-on-month growth in the previous month and their prices fell by 3.5% mom (after 3.2% growth). Both the March and April growth this year are completely out of the normal seasonal pattern, suggesting that a correction has come after the March surge, especially in crop production. It fell by 7.5% month-on-month. In annual terms, the double-digit decline in agricultural output prices is thus continuing (Chart 1b and Chart 2).
Prices for construction work rose slightly month-on-month (0.2%), but this is very close to the long-term average for April, with prices rising by 2% year-on-year, similar to the previous months. Prices for construction materials continued to rise marginally, down 1.5% m-o-m (Chart 3).
Prices for business services rose by 0.7% mom, similar to March. This is also in line with the normal April trend of previous years (Graph 4). This is further reassuring news after February, when services prices rose noticeably above normal seasonality, raising concerns about the persistence of inflation in this price range. Year-on-year, services prices slowed their rate of increase from 4.1% to 3.4%, the lowest rate since January 2022. This positive development is only slightly spoiled by the fact that market prices excluding advertising services rose appreciably above normal seasonality in April, and so services prices still need to be monitored more closely.
April's figures thus look relatively favourable, both confirming the March reading in terms of a gradual easing of inflationary pressures in services and bringing a correction in crop prices, which reduces the risks of a pass-through to consumer food prices. Despite these relatively positive developments, however, we believe that the CNB will adopt a slightly more cautious approach to monetary easing from June onwards, and will only proceed with rate cuts in quarter-percentage-point steps.
