Producer prices come in softer than consumer prices in March

Producer prices rose less than economists expected in March after consumer prices came in hot, delivering a measure of relief to analysts and suggesting underlying inflation may still be easing.

The Labor Department’s producer price index (PPI) rose by 0.2 percent last month, falling short of expectations at 0.3 percent. The index advanced by 0.6 percent in February and 0.4 percent in January.

The PPI moved up by 2.1 percent over the previous 12 months on an unadjusted basis, an acceleration from 1.6 percent in February and 1 percent in January. The consumer price index (CPI) advanced to a 3.5-percent annual increase in March, causing markets to take a dive on Wednesday.

“The PPI is much less important than the CPI. But it came in cooler than expected, taking a bit of the edge off yesterday’s CPI print,” Harvard University economist Jason Furman wrote online Thursday morning.

Commercial economist Diane Swonk of accounting firm KPMG called the March PPI number “not as ugly as CPI but still not enough good news to prompt the Fed to cut as quickly as many hoped.”

The March uptick was due to a 0.3 percent rise in prices for services, while the goods index dipped down by 0.1 percent.

Former White House economist Ernie Tedeschi noted a cooling in the PPI-measured price of auto insurance, which came in especially hot in the CPI at a 2.6-percent monthly increase to hit a more than 22 percent annual increase. 

He said the slowdown bodes well for the next personal consumption expenditures (PCE) price index, another important measure of inflation.

“Auto insurance in PPI, which is what goes into PCE, came in much cooler than CPI in March month-to-month: 0.1 percent, versus CPI’s 2.6 percent. That difference alone will shave [about] 10 [basis points] off of monthly core PCE in March relative to core CPI,” he wrote online.