The Economy

Producer Prices Show First Drop Since August

With the PPI having increased 2.3% in the 12 months through March, inflationary pressures still appear to be heating up.
Matthew HellerApril 14, 2017
Producer Prices Show First Drop Since August

Prices paid by U.S. businesses for goods and services fell in March for the first time in seven months but the annual trend continues to indicate that inflationary pressures are increasing.

The Labor Department said its producer price index fell 0.1% on a seasonally adjusted basis last month compared with February when the PPI rose 0.3%. It was the first decline since August.

But in the 12 months through March, the PPI increased 2.3% — the largest increase since March 2012 — following a 2.2% gain in February. Economists polled by Reuters had forecast the index unchanged in March and rising 2.4% from a year ago.

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“Overall domestic price pressures are rising, with most consumer inflation measures now above the Federal Reserve’s 2 percent target,” Reuters said. “The increases reflect in part an ebb [in] the dollar’s rally and strengthening domestic demand.”

Core PPI — a measure of underlying producer price pressures that excludes food, energy and trade services — advanced 0.1% in March after advancing 0.3% in February. The annual gain in core PPI was 1.7%, down from January’s 1.8%, while the Fed’s preferred measure of inflation — the core personal consumption expenditures index — is currently at 1.7%, still below its 2% target.

Producer prices in March were held down by a drop in the cost of services and energy products. Energy prices fell 2.9%, with the cost of gasoline tumbling 8.3%.

Both the indexes for final demand services and final demand goods dropped 0.1% last month, with a 4.1% drop in loan services driving the decline in prices for final demand services. Wholesale food prices increased 0.9% following a 0.3% rise in February.

“With oil prices rising in recent days and recovering nearly all of March’s losses on reports Saudi Arabia wants to extend production cuts enacted in January for another six months, monthly producer prices are likely to resume their upward trend,” Reuters said.