US producer inflation warms in March as prices rise sharply

WASHINGTON (Reuters) – US producer prices rose more than expected in March, resulting in the biggest annual gain in 9-1 / 2 years and likely marking the start of higher inflation as the economy reopens. an improved public health environment and massive government support.

Friday’s report from the Department of Labor also showed solid gains in the manufacturer’s base prices last month. This is in line with business surveys showing increasing cost pressures, as strengthening domestic demand pushes supply constraints.

Federal Reserve Chairman Jerome Powell reiterated on Thursday that he believes the expected rise in inflation will be temporary and that supply chains will adapt and become more efficient. Most economists agree, citing a considerable weakness in the labor market.

“Beyond the temporary effects, inflation is unlikely to continue to accelerate, given a broad weakening of the labor market,” said Rubeela Farooqi, chief economist at High Frequency Economics in White Plains, New York.

The output price index for final demand rose 1.0% last month as costs rose everywhere. PPI rose 0.5% in February. In the 12 months to March, the PPI rose by 4.2%. This was the largest year-on-year increase since September 2011 and followed by an advance of 2.8% in February.

Year-on-year PPI has intensified as weak values ​​last spring gave up the calculation. Prices plummeted at the start of the pandemic amid forced closures of non-essential businesses in many states to slow the first wave of COVID-19 cases.

Economists surveyed by Reuters had predicted that the PPI would increase by 0.5% in March and increase by 3.8% year-on-year. The PPI report was postponed after the website of the Bureau of Labor Statistics collapsed. BLS, the statistics agency of the Department of Labor, said it was analyzing the website’s problem.

Commodity prices rose 1.7%, accounting for almost 60% of PPI growth last month. This was the largest increase since December 2009 and followed by a 1.4% increase in February. Prices for services rose 0.7% after gaining 0.1% in February.

Shares on Wall Street traded more. The dollar won against a basket of currencies. US Treasury prices were largely lower.

SOLID EARNINGS

The government has granted a nearly $ 6 trillion exemption from the pandemic in the United States in March 2020, while the Fed has reduced its overnight interest rate to almost zero and is pumping money into the economy through monthly bond purchases.

Powell said Thursday that while he expects increased supply and supply chain bottlenecks as the economy reopens, “it seems unlikely that it will change the psychology of inflation that has taken root over several years.” .

Employment remains about 8.4 million jobs below its peak in February 2020. Although vacancies have returned to pre-pandemic levels, job competition remains rigid, limiting workers’ ability to negotiate higher wages big.

But some economists do not share Powell’s assessment of inflation, arguing that businesses have the ability to pass on higher production costs to consumers. Business surveys have shown that customer stocks are at record lows and that order books are full.

“The implication is that manufacturers have the potential for price power that we haven’t seen in years,” said James Knightley, chief international economist at ING in New York. “With a wider scope to pass on these price increases to customers, the obvious implication is that risks are increasingly shifting towards higher CPI readings.”

Fed Vice President Richard Clarida said on Friday that if the expected rise in inflation is not reversed by 2022, the US central bank “will have to take this into account”.

According to a Reuters poll, the consumer price index probably rose by 0.5% in March, which would increase from one year to 2.5% from 1.7% in February. The report is scheduled for release on Tuesday.

Wholesale energy prices rose by 5.9%, representing 60% of the large increase in commodity prices in March. Energy prices rose by 6.0% in February. Food prices rose 0.5% last month.

With the exception of volatile components for food, energy and commercial services, producer prices increased by 0.6%. The so-called core PPI gained 0.2% in February. In the 12 months to March, the core PPI accelerated by 3.1%, the highest increase since September 2018, after rising by 2.2% in February.

In March, wholesale commodity prices rose by 0.9%, after gaining 0.3% in February. The Fed is following the Personal Consumer Expenditure Price Index (PCE) for its inflation target of 2.0%, a flexible average.

The basic PCE price index is 1.5%. Some of the PPI components, which are included in the core PCE price index, rose moderately last month.

Airline tickets rose 1.1% after jumping 3.7% in February. Healthcare costs increased by 0.2% after decreasing by 0.1% in the previous month. Portfolio management fees returned 1.6%, after falling 1.1% in February.