(Bloomberg) -- US producer prices rose in April by more than projected, though key components that feed into the Federal Reserve’s preferred inflation gauge were more muted.

The producer price index for final demand increased 0.5% from a month earlier, driven largely by services and following a downwardly revised 0.1% drop in March, Bureau of Labor Statistics data showed Tuesday. Compared with a year ago, the PPI rose by the most since April 2023.

Stock-index futures recovered early losses and Treasury yields fell after briefly rising as investors assessed the strong headline figure and the more tame details.

“These days we mostly care about what the PPI means for the Fed’s preferred PCE deflator measure of core consumer price inflation,” Paul Ashworth, chief North America economist at Capital Economics, said in a note. “In that respect, April’s news was mixed but, on balance, encouraging.”

Several categories in the PPI report that are used to calculate the central bank’s preferred inflation measure — the personal consumption expenditures price index — eased. 

Among those, the cost of hospital outpatient care fell 0.1% and airfares dropped 3.8%. Prices for physician care rose modestly. At the same time, prices for portfolio management services increased 3.9%. The April PCE price gauge is due later this month.

The wholesale inflation figure is getting particular scrutiny this week because it comes a day before the BLS issues its widely anticipated April consumer price index data.

Fed officials have since July held their benchmark interest rate at the highest level in more than two decades, and worse-than-expected inflation data so far this year have pushed expectations for rate cuts into the second half of 2024.

Services Costs

The PPI report showed overall services costs climbed 0.6%, the most since July and accounting for nearly three-fourths of the overall increase in the PPI. Goods prices rose 0.4% on the back of higher fuel costs.

Retail gasoline prices rose in April to the highest level since October, though they’ve edged lower so far this month, and the recent moderation in crude oil prices points to further declines ahead.

Stripping out food, energy and trade services, which is an even-less-volatile PPI measure, prices increased 0.4% in April after a 0.2% gain.

The April consumer price index will be published Wednesday. Economists generally expect that data to show the CPI excluding food and energy returned to a more modest pace of increases after three higher-than-expected readings to start 2024.

--With assistance from Kristy Scheuble, Mark Niquette and Daniel Neligh.

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