US producer prices post first drop in seven months

April 13, 2017 09:47 AM

U.S. producer prices fell in March for the first time in seven months, weighed down by a drop in the cost of services and energy products, but the largest annual increase in five years suggested inflation was rising.

The Labor Department said on Thursday its producer price index for final demand slipped 0.1 % last month. That was the first decline since August and followed a 0.3 % gain in February. Despite last month's dip in prices, the PPI shot up 2.3 % in the 12 months through March.

That was the biggest gain since March 2012 and followed a 2.2 % jump February. Economists polled by Reuters had forecast the PPI unchanged in March and rising 2.4 % from a year ago. 

Prices for final demand services fell 0.1 %, accounting for three-quarters of the drop in the PPI in March.

That followed a 0.4 % gain in February. Energy prices fell 2.9 %, with the cost of gasoline tumbling 8.3 %. Energy prices increased 0.6 % in February. 

With oil prices rising in recent days and recovering nearly all of March's losses on reports Saudi Arabia wants to extend production cuts enacted in January for another six months, monthly producer prices are likely to resume their upward trend.

Overall domestic price pressures are rising, with most consumer inflation measures now above the Federal Reserve's 2 % target. The increases reflect in part, an ebb the dollar's rally and strengthening domestic demand.

The dollar has declined 2.8 % against the currencies of the United States' main trading partners since January and commodity prices have been rising as the global economy firms.

A key gauge of underlying producer price pressures that excludes food, energy and trade services edged up 0.1 % in March. The so-called core PPI rose 0.3 % in February. 

Core PPI increased 1.7 % in the 12 months through March after advancing 1.8 % in February. 

The cost of healthcare services rose 0.1 % after increasing 0.2 % in February. Inpatient healthcare services gained 0.2 % last month after a similar rise in February.

The cost of outpatient care increased 0.2 %, while physician care rose 0.2 % after being unchanged in February. Those costs feed into the Fed's preferred inflation measure, the core personal consumption expenditures index. 

Wholesale food prices increased 0.9 % following a 0.3 % rise in February.

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