Fed cautious despite softer PPI

U.S. producer prices rose 0.5 percent in March, but Federal Reserve officials still face an inflation picture clouded by war-driven energy costs and no immediate case for rate cuts. (bls.gov) The Producer Price Index tracks what businesses receive for goods and services before those costs reach consumers. The Bureau of Labor Statistics said final-demand prices rose 0.5 percent in March, below the 1.1 percent increase economists polled by Reuters had expected. (bls.gov) (finance-commerce.com) On a 12-month basis, producer prices were up 4.0 percent in March, the fastest annual increase since February 2023. Prices for final-demand goods jumped 1.6 percent, while final-demand services were unchanged. (bls.gov) The softer headline did not come from broad-based relief in energy. The Bureau of Labor Statistics said final-demand energy prices rose 8.5 percent in March, with gasoline up 15.7 percent and crude petroleum up 20.2 percent. (bls.gov) That split is why the report did not settle the rate debate. The Bureau of Labor Statistics said its measure excluding foods, energy, and trade services still rose 0.2 percent in March and 3.6 percent from a year earlier. (bls.gov) Consumer inflation had already shown the same pattern four days earlier. The Consumer Price Index rose 0.9 percent in March and 3.3 percent from a year earlier, while core prices excluding food and energy increased 0.2 percent on the month and 2.6 percent on the year. (cnbc.com) Federal Reserve policymakers left their benchmark rate unchanged at 3.50 percent to 3.75 percent at their March 17-18 meeting. In the projections released that day, officials still penciled in a policy path for 2026, but those forecasts were explicitly based on information available before the latest shocks. (federalreserve.gov) Janet Yellen said on April 15 in Hong Kong that one rate cut this year was still possible, but she also said the Iran war was creating “a broad supply shock” and pushing inflation higher. Reuters reported that crude prices had surged more than 30 percent during the six-week conflict. (kfgo.com) Markets have moved the other way. Reuters reported that traders had priced out bets on any Federal Reserve rate cut this year after starting 2026 expecting roughly two cuts. (kfgo.com) The next test comes with fresh Federal Reserve communication this week and the next round of inflation data after March’s energy shock. For now, the producer-price report showed some cooling under the surface, but not enough to clear the bar for easier policy. (federalreserve.gov) (bls.gov)