TLDR:
- Wholesale prices fell 0.4% in March, with annual PPI slowing to 2.7%
- Core PPI rose at 3.3% annual rate, below expectations of 3.6%
- Results follow positive consumer inflation data released earlier
- Market reaction was muted despite the good news
- Trump’s tariffs (145% on Chinese imports, 10% on other countries) cloud the inflation outlook
The latest economic data shows inflation cooling at the wholesale level, giving markets more good news on price pressures. The Producer Price Index (PPI), which tracks inflation before it reaches consumers, fell 0.4% in March from February. This was well below economists’ expectations of a 0.2% monthly increase.
On an annual basis, wholesale prices rose 2.7% compared to March 2024. This represents a slowdown from February’s 3.2% year-over-year rate and came in below the 3.3% forecast by economists polled by FactSet.
Core PPI, which excludes volatile food and energy prices, increased at a 3.3% annual rate. This was also better than expected, with economists having predicted a 3.6% annual increase in core producer prices.
Market Reaction
Despite the positive inflation data, stock market futures showed only modest gains. S&P 500 futures were up 0.7%, Dow futures rose 0.6%, and Nasdaq 100 futures increased 0.9%.
These movements were largely in line with where futures were trading before the report was released. As Bespoke Investment Group co-founder Paul Hickey noted, “Given the brushing off yesterday’s CPI, it doesn’t look like the market will pay much attention to that report.”
The muted reaction follows a pattern set the previous day. Markets had already received encouraging news about consumer inflation, with the Consumer Price Index (CPI) rising just 2.4% in March compared to a year earlier.
This was the smallest year-over-year increase since September. Core consumer prices also posted their smallest annual increase in nearly four years.
Tariff Concerns
While inflation appears to be cooling, the economic outlook is complicated by trade policies. President Donald Trump has implemented new tariffs that many economists fear could reverse some of the progress on inflation.
Trump has imposed a 145% tax on Chinese imports. He has also placed a 10% tariff on most imports from the rest of the world, with warnings this rate might increase after 90 days.
These trade barriers are expected to push prices higher as importers pass along their increased costs to consumers and businesses. This could potentially counteract some of the positive trends seen in recent inflation data.
The combination of cooling inflation and new tariffs creates uncertainty for economic forecasters. While the current data suggests price pressures are easing, the full impact of the trade policies has yet to be reflected in inflation numbers.
For now, both wholesale and consumer inflation readings are moving in a direction that would typically please markets and the Federal Reserve. However, the tariff situation introduces a complicating factor that could alter the inflation trajectory in coming months.
The Labor Department’s release of the March PPI data completes a week of inflation reports that, taken together, show price pressures continuing to moderate from their post-pandemic peaks. Whether this trend can continue in the face of new trade barriers remains to be seen.
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