Photographer: David Paul Morris/Bloomberg
U.S. wholesale prices rose by less than expected in March, despite a surge in energy costs tied to the Iran war. The producer price index (PPI) rose 0.5 percent after a revised 0.5 percent increase in February, according to Bureau of Labor Statistics (BLS) data out yesterday. An underlying gauge that excludes food and energy rose just 0.1 percent.
The PPI data follow figures out last week that showed U.S. consumer prices surged in March because of skyrocketing gasoline prices, even as underlying inflation came in below estimates. While the initial impact for consumers is largely limited to energy, businesses may face higher costs for a wide range of industrial inputs from war-related disruptions in production and shipping in the months ahead.
The BLS said a nearly 16 percent jump in gas prices was responsible for almost half of the increase in goods prices, which rose by the most since August 2023. Services prices were little changed despite a 1.3 percent rise in transportation and warehousing costs, a category forecasters had flagged as sensitive to the conflict.
Prices for industrial gases—a category that includes helium, whose shipping has been affected by drastic reductions in seaborne traffic through the Strait of Hormuz—were unchanged in March, according to the figures. The United States began its own naval blockade of the strait on Monday in the war's seventh week.
"The modest rise in the core PPI in March brings some genuinely good news," Samuel Tombs, the chief U.S. economist at Pantheon Macroeconomics, said in a note. But "PPI energy prices will rise considerably further in April."
.What Bloomberg economists say..."Upstream costs that were rising before the Iran war are accelerating now, keeping price pressure in the value chain. We expect hotter readings moving forward."— Troy Durie |
Economists are also watching the extent to which companies are passing along tariff-related costs. Although the U.S. Supreme Court struck down many of President Donald Trump's tariffs in February, the president is trying to impose duties using different provisions. The PPI report showed trade services costs, a proxy for profit margins, fell for a second month after a surge in December and January.
Despite the softer-than-expected reading in March, another measure suggested more inflation pressures earlier in the production process. Costs of processed goods for intermediate demand rose by the most in nearly four years, boosted by rising energy and food costs.
Yesterday's report also showed inflation lessened somewhat in components like computers and computer equipment, which have been in demand because of the data center buildout. Federal Reserve Chair Jerome Powell has flagged that construction as a source of upward pressure on prices for such equipment and related goods. Prices for transformers, switchgear, and construction machinery were flat or up only slightly.
Fed officials are closely tracking the impact that the oil shock and the war more broadly will have on prices. Investors see little chance of another interest rate cut in 2026 amid renewed inflation risks, according to futures, though many economists are maintaining forecasts for one or more reductions later in the year.
Several components of the PPI are of particular interest because they feed into the U.S. central bank's preferred inflation gauge, the personal consumption expenditures (PCE) price index. Those categories showed a mixed pace of increases. Scheduled air passenger transport jumped by 4.1 percent in March, while portfolio management services rose 1 percent for a second month. Key healthcare categories showed more muted gains.
The Bureau of Economic Analysis (BEA) is scheduled to release March PCE price data, along with income and spending figures, on April 30.
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