Wholesale Inflation Slows Sharply to Slowest Pace in 2 Years

Cars move on the assembly line at the BMW Spartanburg plant in Greer, S.C., on Oct. 19, 2022. Sean Rayford/AP Photo

Wholesale inflation slowed sharply in March after a year of Federal Reserve rate hikes, with producer prices rising at their slowest pace in two years.

The Producer Price Index (PPI)—which reflects price changes by manufacturers, farmers, and wholesalers—fell by 0.5 percent month-over-month in March, according to data from the Bureau of Labor Statistics (BLS).

Consensus forecasts expected the PPI inflation gauge to remain flat over the month at zero percent.

“March PPI with a significant downside surprise,” Liz Young, head of investment strategy at SoFi, said in a statement. “Cooling in demand coming through in this data.”

On a year-over-year basis, the PPI gauge came in at 2.7 percent, also below forecasts calling for a 3 percent pace of wholesale inflation.

The year-over-year data represents the ninth consecutive month of decline and the lowest since January 2021. Wholesale inflation peaked at 11.7 percent in March 2022.

“Looking through the categories, what stands out is that almost all were flat or negative, although energy led the way,” Kathy Jones, chief fixed income strategist at Schwab Center for Financial Research, said in a statement.

Gasoline, in particular, saw a sharp 11.7-percent decline in prices month-over-month. This drop accounted for around 80 percent of the overall March decline in the PPI measure.

Liquefied petroleum gas prices fell 7.1 percent over the month, while home heating oil and distillates fell by 4.6 percent.

Upward pressure on food prices remained, however, with final demand foods moving up by a monthly 0.6 percent.

While some food categories like dairy (-2.0 percent), grains (-7.5 percent), and fresh vegetables (-7.5 percent) saw declines, others saw notable price jumps.

Eggs, in particular, jumped 33.9 percent month-over-month. Prices of beef and veal (1.5 percent), pork (3.4 percent), and processed young chickens (6.3 percent) also went up.

Wholesale inflation is viewed as a leading indicator of consumer inflation as it reflects business costs that eventually tend to get passed along to end users.

Consumer Price Inflation

Thursday’s wholesale inflation data followed a Wednesday report showing that the Consumer Price Index (CPI) eased in March to 5 percent year-over-year, the lowest in nearly two years.

“There are signs of hope in this month’s inflation report,” Bankrate Chief Financial Analyst Greg McBride told The Epoch Times in an emailed statement.

“While energy prices declined mightily for the month of March, food prices moderated–and particularly important was that prices for food at home declined 0.3 percent for the month,” he added.

Electricity costs also fell sharply in March, retreating by 0.7 percent.

“Easing price pressures for household staples like food and energy are a step in the right direction, though may yet prove fleeting,” McBride added.

Rents, however, which are a lagging inflation indicator, rose 0.6 percent month-over-month and 8.3 percent year-over-year.

“Trouble spots remain with motor vehicle insurance, household furnishings, and supplies, and apparel still posting consistent, and somewhat outsized, monthly increases,” McBride said.

“Hopes for further relief for household budgets is contingent on seeing these moderating price pressures sustained for a number of months across a broad range of categories,” he added.

Core inflation, which strips out the volatile categories of food and energy, climbed 0.4 percent month-over-month in March and 5.6 percent year-over-year.

Analysts said that, despite signs of easing in consumer price inflation, it would still take some time before inflation returns to around the Fed’s 2 percent target.

“Headline inflation still continues to trend down, but progress on core inflation seems to be stalled,” Alan Detmeister, senior economist and executive director at UBS, said in a Morningstar report.

“It’s going to take time, at least a year away from that. But once you start getting more toward the summer, we expect to see monthlies start to ease on the core side,” he added.

The International Monetary Fund predicted in a recent report that inflation won’t fall to central banks’ targets until sometime in 2025.