Inflation rose to 2.1% in March in producer price index, adding to signs prices are hot

Inflation, as measured by the producer price index, rose 0.6 percentage points to 2.1% for the year ending in March, the Bureau of Labor Statistics reported Thursday, adding to recent data indicating that the Federal Reserve may have to do more to curb price pressures.

Economists had forecast annual wholesale inflation would rise to 2.2%, so the increase was a bit less than anticipated.

On a month-to-month basis, the wholesale price index was running at 0.2%, slightly less than expected.

Meanwhile, “core inflation,” which strips out volatile food and energy prices, rose 0.3 percentage points, slightly more than expected, to 2.4% in the year ending in March.

The report comes one day after the even more closely watched consumer price index report showed that inflation accelerated faster than expected.

CPI inflation rose to 3.5% for the year ending in March, the Bureau of Labor Statistics reported Wednesday.

“Inflation isn’t any hotter than it was after yesterday’s shock and the year-to-year increases are barely registering at 2.1% for final demand producer prices,” said Chris Rupkey, chief economist at FWDBONDS. “It is difficult to know what the proper course for the Fed’s interest rate policy is right now, but certainly, the need to restart its rate hikes, paused since last July, does not seem to be necessary at this juncture.”

The signs that inflation may not be falling as hoped are bad news for President Joe Biden, because White House has been emphasizing any declines in inflation, alongside the robust labor market, as “Bidenomics” in action.

Annual inflation peaked at about 9% in June 2022, and, while, it is now much lower than it was, price growth is still running higher than the Fed’s preferred 2% level. The past few months have not seen the rapid disinflation that economists had hoped for at the start of the year.

Housing and energy prices have been the major culprits in pushing up consumer inflation and have made it more difficult for the Fed to consider cutting its interest rate target. The timing of a future rate cut has been a moving target that keeps getting pushed back further into 2024.

At the end of last year, most Fed watchers were thinking the Fed would have already cut rates by now, but as 2024 inches along, some are even saying that there is a possibility of no interest rate cuts — a scary scenario for Biden in an election year.

Federal Reserve Bank of Minneapolis President Neel Kashkari, one of the voting members of the Federal Open Market Committee, acknowledged that the Fed might not cut interest rates this year as inflation remains sticky. That possibility clashes with investors and even the Fed itself, which is predicting coming rate revisions.

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Still, the Fed has some leeway, given the country’s strong labor market and robust gross domestic product growth.

The economy added 303,000 jobs in March, a number that exceeded expectations. Economists had forecast about 212,000 new payroll jobs, adjusted for seasonal variation.

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