Prices received by U.S. producers sank 0.5 percent in March, a sign that price pressures may have begun to ease after several months of resisting efforts by the Federal Reserve to tame inflation.
Economists had forecast the producer price index to be flat for the month, meaning no overall change in the price level. The decline indicates that the price level fell last month, the largest decline since the start of the pandemic.
Compared with a year ago, the producer price index is up 2.7 percent, a big drop from the 4.9 percent in the prior month. The 12-month figure is somewhat distorted by year-ago effects on the price level stemming from Russia’s invasion of Ukraine. In March of last year, the producer price index (PPI) rose 1.6 percent compared with the prior month, the largest increase recorded in data going back to 2010.
Economists polled by The Wall Street Journal had forecast no change in the producer price index. The decline last month was the biggest since the start of the pandemic in early 2020.
The figures come from the Department of Labor’s index of producer prices for “final demand,” which measures prices of goods and services received by U.S. producers and margins for retailers on goods sold to households, governments, and nonprofits. Although sometimes described as an index of wholesale prices, there is no particular link between the index and wholesale prices. The producer price index differs from the better-known consumer price index in several ways. Notably, it excludes sales taxes, which are not received by producers, and import prices.
Core producer prices, a measure of producer prices that excludes out volatile food and energy costs as well as trade margins, rose by 0.1 percent in March, below Wall Street’s expectations. Compared with a year ago, these core prices rose 3.6 percent, down from 4.5 percent in the 12-month figure for February.
Prices for final demand goods decreased 1.0 percent in March after falling 0.3 percent in February. This was due to a 6.4 percent drop in energy prices, driven by an 11.7 percent drop in gasoline prices. Excluding food and energy, goods prices rose 0.3 percent. Food prices climbed 0.6 percent.
Prices for final demand services moved down 0.3 percent in March, the largest decline since falling 0.5 percent in April 2020. Margins for final demand trade services—a metric based on changes in margins received by wholesalers and retailers—dropped 0.9 percent.
The index for final demand transportation and warehousing services fell 1.3 percent. In contrast, prices for final demand services less trade, transportation, and warehousing ticked up 0.1 percent.
The producer price index also includes measures of so-called “intermediate prices,” which are those purchased by businesses for further processing before goods and services are sold to end-users.
The index for processed goods for intermediate demand fell 1.0 percent in March after moving down 0.4 percent in February, led by a decline in energy goods. Prices of unprocessed goods dropped by a steep five percent, also led by energy prices falling sharply. Half of the decline was due to a decline in the price of crude petroleum.
The index for services for intermediate demand dropped 0.5 percent in March following a 0.3-percent rise in February. The Department of Labor said that nearly 60 percent of the March decline in the index for services for intermediate demand can be attributed to a 5.4-percent decrease in prices for loan services.