Supplier Prices Fell in March, Adding to Signs of Moderating Inflation

Producer-price index declined 0.5% from prior month, largest drop since April 2020

By Gabriel T. Rubin of The WSJ. Excerpts:

"U.S. supplier prices fell in March by the most in nearly three years, the latest evidence that inflation is moderating.

The producer-price index, which generally reflects supply conditions across the economy, fell 0.5% in March from the prior month, the largest monthly decrease since April 2020, the Labor Department said Thursday.

From a year earlier, supplier prices rose by 2.7% in March, a significant slowdown from highs reached last year, but above prepandemic levels. PPI increased 4.9% in February, from a year earlier. 

Cooling supplier prices can signal future fading of consumer inflation, if firms pass on easing costs."

"“We expect the bite from the Fed’s previous rate hikes will further reduce business and consumer demand, pushing producer price inflation lower throughout the rest of the year,” said Matthew Martin, U.S. economist at Oxford Economics.

Excluding often volatile food and energy costs, the PPI decreased 0.1% from the prior month and was up 3.4% from a year earlier."

The timeline chart below shows the annual inflation rate according to both the CPI and PPI from 1914-2022. I used the average of the CPI and PPI over the 12 months of each year to calculate this, not the December to December method that is the official rate (that is, what is the percentage difference in the CPI in Dec. one year compared to Dec. in the preceding year).

The two rates generally move together, although not always by the same rate. There are some years when the PPI rises less than the CPI. In 45 of the 109 years, the CPI rose less than the PPI. In 12 of the 20 years from 2003-2022, the CPI rose less than the PPI.

Producer prices just about doubled from 2002-2022 (the PPI went from 131.117 to 264.483). The CPI went from 179.9 in 2002 to 292.655 in 2022 or about a 63% increase. But, the CPI in 2022 was about 29.5 times higher in 2022 than in 2013 while the PPI was only about 22 times higher). 

That means the average annual compound inflation rate since 2013 according to the CPI is 3.154% while for the PPI it is 2.876%.

Related post:

The Producer Price Index (PPI) (it has more information about how the PPI is calculated along with data sources)