Wholesale inflation unexpectedly fell in March, dropping for the first time in 17 months. The producer price index for final demand was down 0.4% month-over-month after a 0.1% increase in February. This was lower than the expected 0.2% growth. On an annual basis, headline PPI increased 2.7%, down from 3.2% in February and below the 3.3% forecast.
Core PPI, which excludes food and energy, fell 0.1% in March, down from 0.1% in February and lower than the expected 0.3% growth. This marks the first monthly decline since July. On an annual basis, core PPI eased to 3.3% from 3.5% in February and came in below the 3.6% forecast.
Producer Price Index: Finished Goods
The BLS shifted its focus to the "final demand" PPI series in 2014, but data for these series extend only back to November 2009 for headline PPI and April 2010 for core PPI. Since our analysis emphasizes longer-term trends, we continue to track the legacy PPI for finished goods, which the BLS still includes in its monthly updates. As a later overlay chart will illustrate, the final demand and finished goods indexes remain highly correlated.
In March, the PPI for finished goods fell 1.3% month-over-month, down from 0.2% in February. This is the largest monthly decline in 17 months. Year-over-year, headline PPI for finished goods slowed to 1.0% from 2.1% in February. Meanwhile, core PPI for finished goods was up 0.2% on the month, down from the 0.3% in February. On an annual basis, core PPI for finished goods was unchanged at 2.3%.
Producer Price Index (PPI) vs. Consumer Price Index (CPI)
Both PPI and CPI illustrate monthly price changes. However, as their names suggest, the Producer Price Index measures price changes from the producer perspective whereas the Consumer Price Index measures price changes from the consumer perspective. PPI is thought to be a leading indicator of consumer inflation because, for the most part, when producers pay more for goods and services they are likely to pass along those higher costs to the consumer. With that being said, during the 2020 recession producers were unable to pass along price increases, demonstrating the higher volatility of core PPI than core CPI. This relationship is further illustrated in the next chart.
For a closer look at the two main measures of inflation (CPI and PCE) and how they stack up against each other, check out the video below. Note: data is through January 2024.
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