US producer prices saw the biggest gain in five months in March, with the Labor Department reporting a 0.6% gain, mostly driven by rising gasoline prices. Despite the PPI index increase, inflation pressure remains muted. Year-over-year, the less volatile core-PPI came in at 2%, the slowest rate since late 2017.
Key Takeaways
- The PPI came in at 0.6%, double the expected gain of 0.3% with the February PPI registering a 0.1% gain.
- The unexpected surge in producer prices is largely due to the increased cost of gasoline in March.
- Annually the PPI rose 2.2% in March compared to 1.9% in February, and the core-PPI rose 2%, the smallest gain since August 2017.
Producer prices saw the biggest gain since last October, double the market expectations. The so-called core-PPI which excludes the volatile components of food, energy, and trade services rose 2% annually, the slowest annual increase since August 2017. The core-PPI is a more stable indicator of producer price trends, and rose 2.3% in February on an annual basis.
Consumer prices hit a 14-month high according to a report released on Wednesday, driven by rising gasoline prices, but core inflation remained tame with a major drop in clothing among other areas.
Gasoline prices rose 16%, the most since 2009. Wholesale energy prices jumped 5.6%, compared to 1.8% the month before. Goods rose 1%, with gasoline accounting for well 60% of the gain. Goods rose 0.4% in February. Wholesale food increased by 0.3% after a -0.3% drop the month before. Core goods prices ticked upward by 0.2% after a similar 0.1% gain the month prior.
Services rose by 0.3% after a flat reading the month prior. Healthcare services fell -0.2%. The drop in the cost of outpatient services impacted the core-PCE.
U.S. wholesale prices surge in March on higher cost of gas, PPI shows, but inflation mostly tame. Nothing here or in CPI report to worry the Fed and get bank to reconsider 'patient' easy-money stance. https://t.co/Dwk0YQ5cVq pic.twitter.com/vjvfn6ViSz
— Jeffry Bartash (@jbartash) April 11, 2019
Inflation Target
The minutes of the Federal Reserve policy meeting held on March 19 were released on Wednesday and described inflation as muted. Policymakers did expect it to rise near or to the US central bank’s 2% figure. Gauged by monitoring the core-PCE, inflation is viewed as being at 1.8%.
The low inflation pressure strengthens the central bank’s suggested approach on pausing interest rate hikes throughout 2019 after introducing four rate hikes last year.
Market Reaction
Gold prices have dropped sharply today, breaking through support at $1,300 and sinking -1.05% to the current trading price of $1,295.635oz after a session high of $1,309.82/oz and a low of $1,295.35/oz.
It’s likely that the price dip has been influenced by selling pressure created by the PPI report.
Gold Price Chart
More articles from Conor Maloney
