The U.S. Producer Price Index for April came in much weaker than economists expected today, sparking renewed deflation worries.

The headline PPI for April fell 1.9% in the U.S., led by energy costs, plunging tobacco prices and a hefty dose of auto dealer discounts. Core PPI was off 0.9%, with big declines in autos and cigarettes.

“The PPI has been on a roller coaster, with big swings each month this year. Can you make a trend out of that? Probably not. And it does not make much sense to focus on the special factors that are throwing their weight around in each month’s volatile reading either. The trend in core PPI over the last year has been basically flat,” comments BMO Nesbitt Burns.

CIBC World Markets agrees that the report is dominated by energy components, but it sees other goods are showing a more meaningful deflationary trend. “We continue to believe that the deflation risk – at least in terms of goods prices – is very much in play, even with a falling US dollar and its potential impact on import prices. The economy is simply too weak to allow for price hikes, a fact underscored by the 20-year low set in today’s report on industrial capacity use,” it says.

“This report adds fuel to deflation fears,” agrees Nesbitt. “While we regard the volatility as misleading, that sounds like a quibble given the Fed’s focus on avoiding deflation.”