US producer inflation rises in March as prices rise widely

WASHINGTON (Reuters) – US producer prices rose more than expected in March, resulting in the largest annual profit in 9-1 / 2 years and likely to be the beginning of higher inflation as the economy reopens amid ‘ an improved public health environment and massive government assistance.

The report from the Labor Department also showed solid increases in the underlying producer prices last month. This is in line with business surveys showing the rising cost pressures as the strengthening of domestic demand pushes against the constraints of supply.

Federal Reserve Chairman Jerome Powell reiterated on Thursday that he believes the expected rise in inflation will be short-lived and that supply chains will adjust and become more efficient. Most economists agree, citing a significant weakening in the labor market.

“Apart from temporary consequences, inflation is unlikely to accelerate as the labor market is very sluggish,” said Rubeela Farooqi, U.S. chief economist at High Frequency Economics in White Plains, New York.

The producer price index for final demand rose by 1.0% last month as costs rose across the board. The PPI rose 0.5% in February. In the twelve months to March, the PPI rose by 4.2%. This was the largest year-on-year increase since September 2011, following a 2.8% increase in February.

The PPI on a year-on-year basis received a boost because the poor readings of last year were no longer calculated. Prices tumbled early in the pandemic amid mandatory closures of non-essential businesses in many countries to delay the first wave of COVID-19 cases.

Economists surveyed by Reuters predicted that the PPI would rise by 0.5% in March and rise by 3.8% year-on-year. The PPI report was delayed after the Bureau of Labor Statistics website crashed. The BLS, the statistics agency of the Labor Department, said it was investigating the problem with the website.

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

The shares on Wall Street are trading higher. The dollar rose against a basket of currencies. U.S. treasury prices were mostly lower.

Fixed fixed profits

The government has given nearly $ 6 trillion in relief since the pandemic began in the United States in March 2020, while the Fed lowered its standard interest rate to near zero overnight and pumped money into the economy through monthly bond purchases.

Powell said on Thursday that while he would expect an increase in supply and bottlenecks in the supply chain as the economy reopened, “it seems unlikely that it will change the underlying inflationary psychology that has taken deep root over many years.”

Employment remains around 8.4 million jobs below its peak in February 2020. Although vacancies are again higher than their level before the pandemic, competition for jobs remains fierce, limiting the ability of employees to negotiate higher wages.

However, some economists do not share Powell’s inflation assessment, arguing that businesses have the ability to pass on the higher production costs to consumers. Business surveys indicated that customer inventory is low and order books are full.

“The implication is that manufacturers potentially have the price power we last saw years ago,” said James Knightley, ING’s international chief economist in New York. “With more room to pass on these price increases to customers, the clear implication is that risks are increasingly moving in the direction of higher CPI readings.”

Fed Vice President Richard Clarida said on Friday that if the expected inflation jump does not reverse in 2022, the US Federal Reserve will have to “take this into account”.

According to a Reuters survey, the consumer price index probably rose by 0.5% in March, which would increase the year-on-year increase to 2.5% from 1.7% in February. The report is expected to be released on Tuesday.

Wholesale energy prices rose by 5.9%, accounting for 60% of the broad rise in goods prices in March. Energy prices rose by 6.0% in February. Food prices climbed 0.5% last month.

Excluding the volatile components of food, energy and trade services, producer prices rose by 0.6%. The so-called core PPI rose by 0.2% in February. In the twelve months to March, the core PPI accelerated by 3.1%, the largest increase since September 2018, after rising by 2.2% in February.

In March, wholesale prices rose by 0.9% after rising by 0.3% in February. The Fed maintains the core consumer price index (PCE) for its 2.0% inflation target, a flexible average.

The core PCE price index stands at 1.5%. Some of the PPI components, which provide in the core PCE price index, rose moderately last month.

Airline tickets increased by 1.1% after jumping 3.7% in February. Healthcare costs rose by 0.2% after falling by 0.1% the previous month. The portfolio management fee increased by 1.6% after falling by 1.1% in February.