Monthly producer prices in the United States (U.S.) unexpectedly fell in March, driven by a sharp drop in the cost of energy products. However, tariffs on imported goods are expected to push inflation higher in the coming months.
The Producer Price Index (PPI) for final demand fell 0.4% last month after a revised 0.1% increase in February, the U.S. Bureau of Labor Statistics said on Friday.
Analysts polled by Reuters had expected PPI to rise 0.2% after a flat reading reported for February.
For the 12 months through March, PPI rose 2.7%, down from a 3.2% increase in February.
While President Donald Trump postponed retaliatory tariffs on trading partners for 90 days this week, he also increased tariffs on goods from China to 125%. Beijing retaliated on Friday with a 125% tariff as well. A 10% blanket tariff remains in place on nearly all imports from the U.S., as do 25% tariffs on motor vehicles, steel, and aluminum.
The expected rise in inflation may be tempered somewhat by weaker domestic demand, as shown in the March consumer price report, which saw declines in airfares and hotel and motel room rates.
The tariffs have not only rattled financial markets, but have also raised inflation expectations among consumers and increased the risk of a recession over the next 12 months. Consumer and business sentiment have also reportedly deteriorated sharply.
Minutes of the U.S. Federal Reserve’s March 18–19 meeting, published on Thursday, showed that nearly all policymakers agree that the economy is facing the risk of higher inflation and slower growth at the same time.
Financial markets are now expecting the U.S. central bank to resume cutting interest rates in June after a pause in January, with a 100 basis point cut expected this year. The Federal Reserve's benchmark overnight interest rate is currently in the range of 4.25% to 4.50%.
