US wholesale inflation saw dramatic cooling in March

Minneapolis (CNN) US wholesale inflation continued its decline in March with annual price increases falling dramatically to 2.7% from an upwardly revised 4.9%, according to the producer price index released Thursday by the Bureau of Labor Statistics.

It is the lowest annual level for the key inflation gauge since January 2021.

On a monthly basis, producer prices fell by 0.5%, driven by falling commodity prices, particularly lower energy prices. Prices of fresh and dry vegetables also fell, as did services, while price indices for categories such as light trucks, chicken eggs and meat rose.

Economists expected annual inflation, as measured by the PPI, to come in at 3% for the 12 months ending in March and unchanged from the previous month.

– It is good news that inflation seems to be starting to boil over here, says Chris Rupkey, chief economist at FwdBonds, to CNN. — There is a marked decrease in the producer’s goods, and if I had to bet, I would say that this will lead to lower prices for the goods on the shop shelves in the coming months.

Core PPI, which excludes the more volatile components of food and energy, fell 0.1% for the month and for the 12 months ended March was up 3.4%, down from an upwardly revised 4.8 %.

The PPI is one of several closely watched inflation gauges. Because the producer-centric index captures price shifts upstream of the consumer, it is sometimes seen as a potential leading indicator of how prices may ultimately land at the store level.

Since achieving an 11.2% gain in June 2022, PPI has seen a sharp cooling in the months since, as supply chains have returned to sync since being disrupted by the pandemic and the sharp economic recovery that followed.

Consumer prices have also decreased, but at a more moderate pace.

The consumer price index for March, released Wednesday, was 5%, the lowest annual rate since May 2021, according to the BLS.

Like the CPI, the annual PPI also appears to have benefited from base effects, when year-on-year comparisons are volatile. In March 2022, a time when Russia had just invaded Ukraine and food and energy prices were skyrocketing, PPI shot up to a record 11.7%.

Month-on-month comparisons can be volatile, but PPI’s 0.5% fall in March followed an unchanged reading in February.

Unemployment claims are increasing

Separately on Thursday, the Ministry of Labor released the latest snapshot of unemployment claims.

Initial weekly claims for unemployment insurance rose to 239,000 for the week ended April 8, the highest level since January 2022. Continuing claims, which are filed by people who have received unemployment benefits for more than one week, fell to 1.81 million for the week which was terminated. April 1, up from 1.82 million the week before.

Weekly jobless claims, considered a proxy for layoffs, can be volatile and often subject to revision. Last week, the Ministry of Labor made a number of significant adjustments to recent years’ data to better account for the dynamics of the pandemic.

As of Thursday’s report, the four-week average for weekly claims was 240,000, slightly higher than seen before the outbreak of the pandemic.

“The labor market is softening,” Rupkey said. “And it’s not just softening, it’s starting to look worrisome.”

Unemployment is an indicator of recession, which Federal Reserve economists say became more likely after last month’s banking crisis, according to minutes from the central bank’s March policy meeting released Wednesday.

Rupkey said the latest employment picture indicates a 50-50 chance of a decline, but trends may become clearer in the coming weeks.

“When the labor market gets unlocked, it’s like a runaway train: The layoffs start, and nobody can stop it. It’s too late, and the Fed’s policy tightening has done too much,” he said.

“So right now we’re not quite there … If initial claims fall back below 200,000, where they were for a couple of weeks at the start of the year, then that’s OK, the recession is over. But if it climbs up further — 250,000, 260,000 – I would be concerned,” he said.