Inflation Scare: Producer Price Index Surges Much Higher Than Expected

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Prices received by wholesalers and producers of goods and services rose much faster than expected in March, data from the Bureau of Labor Statistics showed Friday.

The Producer Price Index rose 1 percent in March, more than twice the consensus forecast. On a year-over-year basis, the index is up 4.2 percent, higher than the expected 3.8 percent. That is the fastest pace of price gains since September 2011, when prices climbed 4.5 percent.

The release of the index data was delayed by over 20 minutes when the BLS website crashed on Friday morning.

The PPI measures prices received by businesses, while the more familiar Consumer Price Index measures prices paid by consumers. The two tend to track each other over time but can vary from month to month. Producer prices rose 0.5 percent in February and 1.3 percent in January.

The year-over-year measure was expected to rise dramatically because last year’s prices were depressed by the sudden imposition of lockdown orders in March 2020. Even still, the gain beat those expectations.

Prices for final demand goods—those sold to businesses and households after their last stage of production—rose 1.7 percent in March, the largest increase since the index began in December 2009. The inflation in goods prices accounted for 60 percent of the overall gains in the index.

In a coincidental symmetry, 60 percent of the rise in the price of goods was attributable to the rise in energy prices. A quarter of the rise of the prices of goods was caused by an 8.8 percent rise in the price of gasoline. On an annual basis, gasoline prices were up 52 percent, reflecting the crash in gas prices as people were told to stay at home and avoid travel last year.

Food prices moved up 0.5 percent after rising 1.3 percent in February. On an annual basis, food prices are up 7.0 percent.

The index for final demand services moved up 0.7 percent. Nearly half of the broad-based increase in March is attributable to margins for final demand trade services, which moved up 1.0 percent. Trade services measures the margins of retailers, the difference between what they pay for goods and what they receive for selling them to customers.

Excluding the volatile food and energy categories, producer prices moved up 0.7 percent, well above expectations for a 0.2 percent gain. On an annual basis, prices ex-food and energy were up 3.1 percent. Economists had forecast a 2.3 percent gain.

Excluding food, energy, and trade services, the PPI moved up 0.6 percent, higher than the 0.2 percent expected. On an annual basis, these prices were up 3.1 percent compared with 2.5 percent expected.

 

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