US wholesale inflation heated up again last month

The Producer Price Index, a closely watched measure of inflation at the wholesale level, rose 2.1% for the 12 months ended in March, up from a 1.6% gain in February, according to Bureau of Labor Statistics data released Thursday.

While the increase was lower than expected — FactSet consensus estimates had the annual increase at 2.3% — the acceleration in the prices producers pay for goods and services highlights the persistence of inflation, the bumpy path to bring it lower, and supports fears that interest rates will stay higher for longer.

On a monthly basis, US wholesale prices rose 0.2%, markedly slower than the 0.6% gain in February.

When stripping out the more volatile components of food and energy, the closely watched “core” index moved higher for the third consecutive month, rising to 2.4% annually, up from 2.1% the month before. On a monthly basis, the core PPI slowed in line with expectations to 0.2% from 0.3%.

Economists had projected that core PPI would rise 2.3% annually.

Despite the increases, the annual rate of wholesale inflation (on both the overall and core level) is rising in line with what was seen in the years before the pandemic.

However, the acceleration comes at a bad time: Wednesday’s hotter-than-expected Consumer Price Index stoked concerns that both inflation and interest rates will remain higher for longer.

“It is difficult to know what the proper course for the Fed’s interest rate policy is right now, but certainly, the need to restart its rate hikes, paused since last July, does not seem to be necessary at this juncture,” Chris Rupkey, chief economist of FwdBonds, wrote Thursday.

Soft landing still possible

Through the first quarter of this year, inflation data has showed that the pace of price hikes remain stubbornly high. It also reiterates what Federal Reserve officials, especially Chair Jerome Powell, have been saying all along: The fight to rein in high inflation and bring it down to target (2% annual rate as measured by the Personal Consumption Expenditures price index) will be a long and bumpy process.

Inflation has slowed dramatically from the 40-year highs hit in 2022. In that time, the US central bank executed a series of large rate hikes before going into standby mode during the past several months.

Despite the “last mile” living up to its arduous expectations, the Fed still has a potential soft landing, where inflation is tamped down without a surge in unemployment, in its sights: The labor market didn’t buckle under the crushing weight of rapidly higher interest rates; instead, it remained historically strong.

In March, the US economy added 303,000 jobs, the unemployment rate remained below 4%, and wage growth eased closer to historic norms.

On Thursday, separate data from the Department of Labor showed that layoff activity remains muted. First-time claims for unemployment benefits, considered a proxy for layoffs, totaled 211,000 for the week ended April 6, down 11,000 from the prior week’s upwardly revised level.

Economists were expecting that Americans would file 216,500 initial claims.

This story is developing and will be updated.

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