U.S. producer prices unexpectedly fall in March

WASHINGTON  – U.S. producer prices unexpectedly fell in March as the cost of gasoline declined, and there were signs that underlying producer inflation was subsiding.

The producer price index for final demand dropped 0.5 percent last month, the Labor Department said on Thursday. Data for February was revised to show the PPI unchanged instead of slipping 0.1 percent as previously reported.

In the 12 months through March, the PPI increased 2.7 percent. That was the smallest year-on-year rise since January 2021 and followed a 4.9- percent advance in February. The annual PPI rate is subsiding as last year’s large increases drop out of the calculation.

Economists polled by Reuters had forecast the PPI unchanged on the month and climbing 3 percent year-on-year.

The government reported on Wednesday that overall consumer prices barely rose in March. While underlying inflation remained hot, rents rose at their slowest pace in nearly a year.

Financial markets are betting that the Federal Reserve will increase rates by another 25 basis points at its May 2-3 policy meeting, according to CME Group’s FedWatch tool. That will likely be the last rate hike in the Fed’s fastest monetary policy tightening campaign since the late 1980s.

The Fed last month raised its benchmark overnight interest rate by a quarter of a percentage point, but indicated it was on the verge of halting further rate increases in a nod to the financial market turmoil. It has hiked its policy rate by 475 basis points since last March from the near-zero level to the current 4.75 percent-5 percent range.

A 1 percent decline in goods prices accounted for two-thirds of the drop in the PPI last month. Goods prices fell 0.3 percent in February. Gasoline prices plunged 11.7 percent last month.

There were also decreases in prices for diesel fuel, residential natural gas jet fuel and electric power. Gasoline prices are set to rebound after Saudi Arabia and other OPEC+ oil producers early this month announced further oil output cuts.

Food prices rebounded 0.6 percent. Excluding the volatile food and energy components, core goods prices rose 0.3 percent after a similar gain in February. Prices for services fell 0.3 percent, the largest decline since April 2020. There was a 0.9 percent drop in margins for final demand trade services. The cost of transportation and warehousing services fell 1.3 percent.

Excluding food, energy and trade services components, producer prices gained 0.1 percent in March. The core PPI climbed 0.2 percent in February. In the 12 months through March, the core PPI advanced 3.6 percent after increasing 4.5 percent in February.