U.S. producer prices fall in March

(C) Reuters. People cover their faces as they wait to enter a grocery store in Washington

WASHINGTON (Reuters) – U.S. producer prices fell in March, with the cost of goods dropping by the most since 2015, and further declines are likely as the novel coronavirus weighs on demand for energy products.

The Labor Department said on Thursday its producer price index for final demand slipped 0.2% last month after dropping 0.6% in February, which was the biggest decline since January 2015. In the 12 months through March, the PPI gained 0.7%.

That followed a 1.3% increase in February. Economists polled by Reuters had forecast the PPI decreasing 0.4% in March and gaining 0.5% on a year-on-year basis.

Excluding the volatile food, energy and trade services components, producer prices fell 0.2%, the largest decrease since October 2015, after dipping 0.1% in February. The so-called core PPI increased 1.0% in the 12 months through March after advancing 1.4% in February.

The coronavirus pandemic is suppressing demand for services like transportation, hotel accommodation, entertainment and recreation. At the same time, the specter of a deep global recession and an oil price war between Russia and Saudi Arabia have sent crude prices tumbling. This is expected to offset price increases caused by bottlenecks in the supply chain.

The Federal Reserve tracks the core personal consumption expenditures (PCE) price index for its 2% inflation target. The core PCE price index increased 1.8% on a year-on-year basis in February after rising 1.7% in January. It undershot its target in 2019. March data will be released at the end of the month.

In March, wholesale energy prices tumbled 6.7% after dropping 3.6% in February. They were weighed down by a 16.8% plunge in gasoline prices. That followed a 6.5% decline in February. Gasoline accounted for 80% of the drop in the cost of goods last month.

Goods prices dropped 1.0%, the largest decrease since September 2015, after tumbling 0.9% in the prior month. Wholesale food prices were unchanged last month after falling 1.6% in February. Core goods prices rose 0.2% in March. They edged down 0.1% in February.

The cost of services increased 0.2% in March, after dropping 0.3% in February. Services were lifted by a 1.4% jump in margins for final demand trade services, which measure changes in margins received by wholesalers and retailers.

The cost of healthcare services was unchanged after gaining 0.2% in February. Portfolio management fees dropped 0.8% last month after February’s 0.3% increase. They likely took a hit from a sharp sell-off in the stock market. Those healthcare and portfolio management costs feed into the core PCE price index.