Prices charged by U.S. producers of goods and services rose by 2.1 percent over the twelve months through March, an increase over the 1.6 percent annual inflation recorded in the previous month.
Despite the increase in the year-over-year inflation, rate, there was some good news in the Bureau of Labor Statistics’ producer price index (PPI) for final demand. The monthly increase slowed to 0.2 percent in March from 0.6 percent in February.
Economists had forecast worse. The year-over-year figure was seen as rising to 2.3 percent and the forecast for the monthly figure was for a 0.3 percent increase.
Core PPI, which excluded food and energy prices, rose 0.2 percent, matching the consensus forecast and down from February’s 0.3 percent rise. The annual increase came in at 2.4 percent, just ahead of the expectation for a 2.3 percent rise.
This was the highest annual increase in core PPI since September. The core inflation metric has now climbed for three consecutive months.
So-called “core core” PPI, which excludes a measure of profit margins called trade services as well as food and energy prices, rose 0.2 percent, down from the downwardly revised 0.3 percent gain in the prior month. The 12-month increase rose to 2.8 percent from the downwardly revised 2.7 percent in the prior month. In the first estimate, core core PPI for February was seen as rising 0.4 percent for the month and 2.8 percent for the year.
The services side of the economy is still experiencing a very high rate of inflation. In March, services prices rose 0.3 percent in March compared with February. Compared with March of last year, services prices are up 2.8 percent.
Goods prices declined in March, ticking down 0.1 percent after a sharp rise in February. This was driven by 1.6 decline in energy prices. Food prices jumped 0.8 percent. Excluding food and energy prices, goods prices rose 0.1 percent for the month.
The producer price part of the measure’s name comes from the fact that the price changes are measured from the point of view of the seller of the goods rather than the buyer. That means they do not include sales or excise taxes or government subsidies that go to consumers. Shipping costs that are paid by consumers are also excluded. The prices of imports are not included because those are not received by U.S. producers but by foreign producers.
The final demand part of the measure’s name comes from the fact what is measured is the prices of sales to what are sometimes called end-users. That is, these are not sales of components or materials that are directly employed to create goods and services sold to consumers. These are products sold to customers who are government buyers, household buyers, businesses buying capital goods, and foreign buyers.
In addition the index of final demand goods and services, the government calculates indexes for intermediate demand products. These are goods and services purchased by businesses as inputs to production, excluding capital investments. Intermediate goods can include wood used in home construction, hardware assembled into computers, and wheat that is later processed into food.
Processed goods for intermediate production jumped 1.6 percent in February, the biggest increase since August. In March, however, this was partially reversed, with processed goods for intermediate demand prices falling 0.5 percent. That decline was driven by a 1.5 percent drop in energy. Intermediate food and feeds prices rose for a second consecutive month, with inflation accelerating from 0.3 percent to 0.6 percent. Excluding food and energy prices, prices of processed goods for intermediate demand were down 0.4 percent.
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