WASHINGTON (Reuters) – US producer prices rose more than expected in March, resulting in the biggest annual increase in 9-1 / 2 years and likely marking the start of higher inflation, already that the economy reopens amid an improved public health environment and massive government aid.
Friday’s Labor Department report also showed solid gains in prices underlying the producer last month. This was in line with business surveys showing increasing cost pressures, as strengthening domestic demand pushes against supply constraints.
Federal Reserve Chairman Jerome Powell reiterated Thursday that he believed the projected rise in inflation would be transitory and that supply chains would adapt and be more efficient. Most economists agree, citing a considerable turnaround in the labor market.
“Beyond the temporary effects, inflation is unlikely to continue to accelerate, given a large influx into the labor market,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York.
The output price index of final demand jumped 1.0% last month as costs rose overall. The PPI rose 0.5% in February. In the twelve months to March, the PPI rose 4.2%. This was the largest year-on-year rise since September 2011 and followed an increase of 2.8% in February.
The year-on-year PPI increased as last spring’s weak readings abandoned the calculation. Prices fell early in the pandemic amid forced closures of non-essential businesses in many states to curb the first wave of COVID-19 cases.
Economists surveyed by Reuters had predicted that the PPI would rise 0.5% in March and jump 3.8% year-on-year. The PPI report was delayed after the Bureau of Labor Statistics website crashed. The BLS, the Department of Labor’s statistics agency, said it was studying the website problem.
Commodity prices soared 1.7%, accounting for nearly 60% of the PPI increase last month. This was the largest increase since December 2009 and followed by an increase of 1.4% in February. Service prices rose 0.7% after gaining 0.1% in February.
Wall Street shares were trading higher. The dollar won against a basket of currencies. U.S. Treasury prices were mostly lower.
EARNINGS SOLID
The government has provided nearly $ 6 trillion in relief since the pandemic began in the United States in March 2020, while the Fed has reduced its overnight interest rate to almost zero and pumped money into it. economy through monthly bond purchases.
Powell said Thursday that while he expects increased demand and bottlenecks in the supply chain as the economy reopens, “it seems unlikely that the psychology of underlying inflation that has taken root will change. deeply over many years. “
Employment remains close to 8.4 million jobs below its peak in February 2020. Although vacancies have risen above their pre-pandemic level, competition for employment remains tight. which limits the ability of workers to negotiate higher wages.
But some economists do not share Powell’s assessment of inflation, arguing that firms have the ability to pass on higher production costs to consumers. Business surveys have indicated that customer inventories are at historic lows and order forms are full.
“The implication is that manufacturers may have the kind of price power we haven’t seen in years,” said James Knightley, chief international economist at ING in New York. “With a greater scope for conveying these price hikes to customers, the obvious implication is that risks are increasingly moving in the direction of higher CPI readings.”
Fed Vice President Richard Clarida said Friday that if the expected jump in inflation is not reversed by 2022, the U.S. central bank “will have to take that into account.”
According to a Reuters poll, the consumer price index is likely to rise 0.5% in March, raising the year-on-year increase to 2.5% from 1.7% in February . The report is scheduled for release on Tuesday.
Wholesale energy prices rose 5.9%, accounting for 60% of the general increase in commodity prices in March. Energy prices rose 6.0% in February. Food prices rose 0.5% last month.
Excluding the volatile components of food, energy and trade services, producer prices rose by 0.6%. The so-called basic PPI gained 0.2% in February. In the twelve months to March, the basic PPI accelerated by 3.1%, the largest rise since September 2018, after having risen by 2.2% in February.
In March, wholesale commodity prices rose 0.9% after gaining 0.3% in February. The Fed tracks the Personal Consumer Expenditure (PCE) price index for its inflation target of 2.0%, a flexible average.
The basic PCE price index stands at 1.5%. Some of the components of the PPI, which are integrated into the basic PCE price index, rose moderately last month.
Airline tickets rose 1.1% after jumping 3.7% in February. Healthcare costs rose 0.2% after falling 0.1% the previous month. Portfolio management fees rose 1.6% after falling 1.1% in February.
Report by Lucia Mutikani; Edited by Chizu Nomiyama, Andrea Ricci and Paul Simao