Summary: US producer price index (PPI) up 0.2% in March, less than expected; annual rate accelerates to 2.1%; “core” PPI up 0.2% over month, up 2.4% over year; Citi: some components which are part of PCE softer than expected; short-term US Treasury yields decline, longer-term yields rise; 2024 rate-cut expectations firm a touch; services prices up 0.3%, goods prices down 0.1%.
Around the end of 2018, the annual inflation rate of the US producer price index (PPI) began a downtrend which continued through 2019. Months in which producer prices increased suggested the trend may have been coming to an end, only for it to continue, culminating in a plunge in April 2020. Figures returned to “normal” towards the end of that year but then moved well above the long-term average in 2021 and 2022 before falling back over 2023.
The latest figures published by the Bureau of Labor Statistics indicate producer prices increased by 0.2% after seasonal adjustments in March. The result was less than the 0.3% increase which had been generally expected as well as February’s 0.6% rise. On a 12-month basis, the rate of producer price inflation after seasonal adjustments and revisions accelerated from February’s figure of 1.6% to 2.1%.
Producer prices excluding foods and energy, or “core” PPI, were also up 0.2% after seasonal adjustments. The result was in line with expectations but less than February’s 0.3% increase. The annual growth rate accelerated from 2.0% to 2.4%.
“March PPI was softer than we expected, particularly details of PPI that matter for PCE inflation like airfares, medical services and portfolio management fees,” said Citi Chief Economist Veronica Clark.
Short-term US Treasury bond yields declined on the day while longer-term yields rose moderately. By the close of business, the 2-year Treasury yield had lost 2bps to 4.95%, the 10-year yield had gained 2bps to 4.57% while the 30-year yield finished 4bps higher at 4.67%.
In terms of US Fed policy, expectations of a lower federal funds rate in the next 12 months firmed a touch, with two 25bps cuts currently factored in. At the close of business, contracts implied the effective federal funds rate would average 5.32% in May, 1bp less than the current spot rate, 5.28% in June and 5.26% in July. However, April 2025 contracts implied 4.72%, 51bps less than the current rate.
The BLS stated the rise of the index was attributable to a 0.3% increase in services prices. The final demand goods index declined by 0.1%.
“We were surprised in particular that an increase in physicians’ services prices did not occur in March PPI after a cut of Medicare payments to physicians was partially reversed, and would still highlight this as an upside risk next month,” Clark added.
The producer price index is a measure of prices received by producers for domestically produced goods, services and construction. It is put together in a fashion similar to the consumer price index (CPI) except it measures prices received from the producer’s perspective rather than from the perspective of a retailer or a consumer. It is another one of the various measures of inflation tracked by the US Fed, along with core personal consumption expenditure (PCE) price data.