For the past two months, the conversation has been about oil prices and the blockade. This week, the conversation shifted — because the inflation data finally caught up with the energy data. On Tuesday, the Bureau of Labor Statistics reported that the Producer Price Index for final demand surged 1.4% in April, the largest monthly increase since March 2022. On Monday, the CPI report showed consumer prices rising 3.8% year-over-year, the fastest pace in nearly two years. Together, these reports confirm what the oil market has been warning: the blockade isn’t just a geopolitical story anymore. It’s feeding directly into the prices that producers charge and consumers pay, and the pipeline is still filling.
The PPI measures what businesses are paying at the wholesale level — for raw materials, energy, transportation, and trade margins. The CPI measures what consumers are paying at the register. When both accelerate simultaneously and for the same reasons, the pass-through is real and ongoing. This isn’t a one-month blip. It’s an oil shock working its way through every layer of the economy.
PPI: The Pipeline Is Full
The headline number is striking: final demand prices rose 1.4% in April, the largest monthly advance since the commodity spike in early 2022. On an unadjusted 12-month basis, the index is up 6.0% — the highest reading since December 2022. To put that in context, we were at 3.4% as recently as February. The acceleration has been sharp.
The driver is energy which surged 7.8% accounting for more than three-quarters of the increase. Gasoline alone was up 15.6% in a single month. Diesel fuel rose 12.6%. Jet fuel, industrial chemicals, and residual fuels all moved higher.
The services side part of the PPI rose 1.2% — the largest increase since March 2022 — with two-thirds of the advance driven by a 2.7% jump in trade services margins. This means wholesalers and retailers are passing higher input costs through to customers.
The most concerning signal is in intermediate demand — the costs that haven’t fully reached consumers yet. Unprocessed goods are up 20.9% over the past 12 months, driven by crude petroleum rising 11.3% in April alone. Processed goods for intermediate demand are up 9.4% year-over-year. These are the input costs that producers are absorbing today and will pass along over the coming months. The PPI isn’t just telling you where inflation is — it’s telling you where inflation is going.
CPI: The Monster Arrives
Monday’s CPI report confirmed that the producer-level pressure is reaching consumers. Headline CPI rose 0.6% in April, following March’s 0.9% surge. Year-over-year, the all-items index hit 3.8% — up from 3.3% in March which is the fastest annual pace since mid-2024.
The energy index rose 3.8% in April and accounted for more than 40% of the total monthly increase — the same pattern we’re seeing in the PPI. But unlike the PPI, the CPI is also picking up pressure in categories that have nothing to do with oil. Food prices rose 0.5%, with food at home up 0.7% — groceries are getting more expensive as transportation and packaging costs work their way through. Shelter rose 0.6%, still sticky and still the single largest contributor to core inflation.
Core CPI — excluding food and energy — rose 0.4% for the month and stands at 2.8% year-over-year. That’s the number the Fed will point to as evidence that the underlying trend is manageable. And they’re not entirely wrong — shelter is sticky but not re-accelerating, used car prices remain tame, and apparel is flat. But the problem with leaning on core in an energy shock is that energy doesn’t stay in its lane. Higher diesel means higher shipping costs, which means higher prices for everything that moves by truck. Higher jet fuel means higher airfares. Higher natural gas means higher utility bills. The line between “core” and “headline” gets blurrier the longer oil stays near $100.
The Yield Curve
Interest rates are on the rise and you can see below how today’s yield curve (blue line) is rising and steepening as inflation expectations permeate the bond markets. Notable is that we are seeing 5% on long bonds and the 3Mo/2Yr spread is at +36bps which says the Fed is likely to raise rates later this year. Stay tuned as we may see 10Yrs closer to 5% in the coming months.
S&P 500 Earnings
Q1 earnings reports are mostly finished but we do have Nvidia on Wednesday so stay tuned for that final report of significance. For the entirety of the S&P 500, the blended earnings growth rate for Q1 is 27.7% year-over-year — the highest since Q4 2021 and the sixth consecutive quarter of double-digit growth. With 89% of companies having reported, 84% beat EPS estimates (above the 5-year average of 78%), and in aggregate, earnings came in 18.2% above estimates (well above the 10-year average of 7.1%).
Ten of eleven sectors are reporting year-over-year earnings growth, with seven posting double-digit gains. Information Technology, Communication Services, Materials, and Consumer Discretionary led the way. Health Care was the only sector reporting a year-over-year decline.
FactSet also notes the S&P 500 is reporting its highest net profit margin in more than 15 years. Looking ahead, analysts are projecting earnings growth of 19.9% in Q2, 23.2% in Q3, and 20.7% in Q4, with full-year 2026 growth expected at 21.0%.
As you can see below, the S&P has rallied hard from the March low due to the strength of these earnings reports. Will Q2 be as strong?
For now, the market is focused on earnings and momentum. But the inflation data is flashing a warning that’s getting harder to ignore. The PPI pipeline is full, the CPI is accelerating, and the energy shock has no resolution in sight.
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President, Kisco Capital
This commentary is provided by Kisco Capital LLC for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any security. Opinions are subject to change without notice. Past performance is not indicative of future results. All investments involve risk, including possible loss of principal. Kisco Capital and its clients may hold positions in securities discussed herein.
