Lede

The Producer Price Index (PPI) in the US saw a significant drop in annualized price increases to 2.7% in March, the lowest level since January 2021.

Summary

• Monthly producer prices fell by 0.5% due to lower goods prices, particularly energy prices and fresh and dry vegetables.
• Services also saw a decline in prices, while light motor trucks, chicken eggs, and meats saw a price increase.
• Economists were expecting annual inflation, as measured by the PPI, to be at 3% for the 12 months ending in March with no change from the previous month.
• Core PPI, which excludes the more volatile components of food and energy, declined 0.1% for the month and was up 3.4% for the 12 months ended in March.
• PPI is a closely watched inflation gauge as it captures price shifts upstream of the consumer, which can potentially indicate how prices will eventually land at the store level.
• The annual PPI, much like CPI, also appears to have benefited from base effects, where year-over-year comparisons are volatile.
• The PPI has seen a significant cooldown since June 2022, as supply chains have gotten back into sync following the pandemic and sharp economic recovery.
• In contrast, the latest snapshot of jobless claims showed an increase in initial weekly claims for unemployment insurance to 239,000, the highest level since January 2022.
• Continuing claims, filed by people who have received unemployment benefits for more than one week, dropped to 1.81 million for the week ended April 1.
• Federal Reserve economists say a recession became more likely following last month’s banking crisis, and the latest employment picture indicates a 50-50 chance of a downturn.
• The labor market softening is worrisome, and if the initial claims climb further, it could lead to a recession.