US producer prices fell in March by the most since the start of the pandemic, driven by a decline in gasoline costs that has helped slow inflationary pressures.
(Bloomberg) — US producer prices fell in March by the most since the start of the pandemic, driven by a decline in gasoline costs that has helped slow inflationary pressures.
The producer price index for final demand decreased 0.5% from a month earlier, according to data out Thursday from the Bureau of Labor Statistics. The figure was below all estimates in a Bloomberg survey of economists. The PPI slowed on an annual basis, rising 2.7% from a year ago, the smallest gain in more than two years.
Excluding the volatile food and energy components, the so-called core PPI fell 0.1% from February and increased 3.4% from a year ago.
Most of the monthly decline in the overall PPI was due to goods, with 80% of that decrease tied to a drop in gasoline. Margins for machinery and vehicle wholesaling were a major factor in the 0.3% slide in services costs. Those prices slid by the most since April 2020.
The data come just a day after the consumer price index figures, which showed that inflation — while moderating somewhat — remains much too high. The PPI, which is a measure of wholesale prices, has slowed significantly on an annual basis amid improving supply chains and a pullback in commodities prices.
That said, an increase in oil prices — a reaction to the announced OPEC+ production cuts — is poised to limit the favorable progress on wholesale prices over coming months.
Producer prices excluding food, energy, and trade services — which strips out the most volatile components of the index — increased a less-than-expected 0.1% in March, the smallest advance since 2020.
The data potentially bolster the case for the Federal Reserve to soon pause its yearlong run of interest-rate hikes, with the central bank expected to make one more increase at its next meeting in May. Earlier this year, Chair Jerome Powell flagged PPI as an indicator that would factor into the Fed’s decision-making.
Stocks traded higher, two-year Treasury yields fell and the dollar extended declines following the data, along with a separate Labor Department report that showed unemployment claims rose last week.
Several categories from the PPI report, notably in health care, are used to calculate the personal consumption expenditures price gauge — the Fed’s preferred inflation measure — that will be released later this month. Within health care, prices for hospital inpatient and outpatient care increased as did those for physician, nursing home and home health care.
What Bloomberg Economics Says…
“Though PPI reached deflationary territory in March, upward revisions for February and increases in sub-indexes that feed into PCE supercore inflation mean the Fed can’t let up in the inflation fight.”
– Jonathan Church, economist
For the full note, click here.
Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, fell in March, largely a reflection of a steep drop in energy. Excluding food and energy, these costs edged up 0.1% for a third-straight month.
–With assistance from Jordan Yadoo.
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