CNN
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US wholesale prices fell last month, new data showed Friday, an indication that inflationary pressures weren’t necessarily building before they reach the consumer.
The better-than-expected Producer Price Index reading — which showed that the prices paid to producers fell 0.4% in March from the month before and slowed sharply to an annual rate of 2.7%, from 3.2% — provides a snapshot before President Donald Trump’s aggressive trade policies fully kick in.
Economists were expecting monthly prices to rise by 0.2% and to accelerate to 3.3% on an annual basis.
It followed a similarly encouraging Consumer Price Index report, which on Thursday showed that overall inflation cooled for the goods and services Americans commonly purchase.
“Inflation was on a cooling course heading into the tariff shock,” Oren Klachkin, Nationwide’s financial markets economist, wrote in a note to clients Friday. “But like yesterday’s CPI report, today’s PPI data offer little comfort in the face of significant uncertainty, major trade policy changes and financial market turmoil.”
Economists have warned that the sharp escalation in America’s effective tariff rate will result in higher prices for businesses and consumers as well as disrupt the global economy, possibly triggering a recession.
Those recession fears factored in to the latest inflation data somewhat. The sharp drop in overall PPI was partly attributable to broader concerns that the global economy will slow because of that drastic shift in US trading policy.
The energy for final demand index sank 4% for the month, the Bureau of Labor Statistics reported Friday. Energy prices typically move higher this time of year; however, they moved lower last month because of a supply-demand imbalance as well as recession concerns weighing on crude oil prices.
Final demand services also showed some deflation, dropping 0.2% for the month — which likely “shows that the economy is weakening,” Eugenio Alemán, chief economist at Raymond James, said in an interview. “Services prices have remained relatively strong, and we have seen both on the CPI side and on the PPI side that the services prices have weakened somewhat.”
“That’s good for inflation, but it might also be pointing to a slowdown in economic activity,” he added.
In a different time, this report could be an indication that the Federal Reserve’s efforts to dampen demand and rein in inflation were working.
“We’re writing our weekly note today, and one of the subtitles is, ‘Way to make good inflation numbers go to waste,’” Alemán said. “It is good news that companies are not seeing more pressure on prices, which will help counteract any pressures that will start to build as tariffs go into effect.”
Still, Friday’s report did offer some welcome news on inflation: First, wholesale food prices dropped 2.1%; plus, underlying inflation continued to slow. Excluding food and energy, categories that tend to be highly volatile, core PPI fell 0.1% from February (when it rose 0.1%), bringing the annual increase to 3.3%, its lowest rate since September.
Egg prices paid to producers also dropped, reflecting some of the wholesale price declines that the US Department of Agriculture has noted in recent reports. Eggs for fresh use fell 21.3% in March but remain 165.4% higher from a year ago, according to the PPI data.
While the PPI doesn’t fully correlate to the prices consumers eventually pay, such a drop is an encouraging indication that egg prices could start to fall at the grocery store.
PPI, which measures the average change in prices received by producers of goods and services, serves as a potential bellwether for retail-level inflation in the months ahead. This index also is being scrutinized to glean insight as to the initial impacts of Trump’s sweeping new and proposed tariffs.
March marked the second month that tariffs on Chinese goods were in effect (rising from 10% on all imports to 20% in early March); the global 25% tariffs on steel and aluminum imports went into effect on March 12.
In April, Trump upped the ante on his tariff regime, including imposing an across-the-board 10% tariff on imports and a massive 145% duty on Chinese imports.
Friday’s PPI gave some hints as to how tariff-related price pressures could be percolating.
Wholesale iron and steel mill prices jumped 7.1% in March, logging the biggest monthly jump since April 2021, when supply chains were on the fritz amid the sharp pandemic recovery.
“Metals manufacturing prices were up sharply in the March PPI, a sign the steel and aluminum tariffs were starting to bite,” Klachkin wrote. “With tariffs only ramping up further recently, we expect to see more passthrough in future PPI data.”
