U.S. Producer Prices Drop 0.4% in March as Energy and Food Costs Slide, Easing Inflation Pressure

Producer Prices Fall in March, Led by Energy and Food Declines

The U.S. Producer Price Index (PPI) for final demand unexpectedly declined by 0.4% in March, marking the largest monthly drop since October 2023. This retreat follows modest gains of 0.1% in February and 0.6% in January, reflecting broad-based softness in goods and services prices. On a year-over-year basis, final demand prices rose 2.7%, still within the Federal Reserve’s comfort range but showing easing pressure.

Energy and Food Drive the Decline

Goods prices fell sharply by 0.9%, accounting for over 70% of the total drop. A steep 11.1% plunge in gasoline prices led the pullback, alongside notable decreases in diesel, jet fuel, and fresh food products like eggs and beef. Energy alone declined 4.0%, while food prices dropped 2.1%. Excluding volatile food and energy components, core goods prices still edged up by 0.3%, signaling some resilience in underlying producer costs.

Service Margins Soften Further

Final demand services slipped 0.2%, the largest decline since July 2024. Weaker margins in trade services, which fell 0.7%, were the primary drag. Transportation and warehousing services also eased 0.6%. However, core services—excluding trade and transportation—rose slightly by 0.1%, supported by gains in legal and freight services. The index for final demand excluding food, energy, and trade services still rose 0.1% on the month and 3.4% over the past year, indicating persistent stickiness in non-commodity inflation.

Intermediate Demand Highlights Downstream Pressure

At earlier production stages, intermediate demand goods and services also showed weakness. Unprocessed goods prices plunged 4.1%, led by a 7.5% drop in foodstuffs and a 3.3% slide in energy inputs. Processed goods were flat overall, with gains in metals offsetting fuel declines. Service prices for intermediate demand ticked down 0.1%, pulled lower by loan services and retail property rents.

Demand Weakness Broadens Across Production Flow

All four stages of intermediate demand posted declines, with stage 3 demand down 1.0%—the sharpest drop since May 2023. Goods inputs to this stage fell 2.2%, reflecting broader easing in raw material costs. Stage 2 and stage 1 indexes also contracted, reinforcing signals of decelerating pipeline pressures.

Market Forecast: Bearish Near-Term Pressure on Inflation Expectations

March’s PPI data points to easing input costs, especially in energy and food, with modest underlying inflation in core services. The broad-based pullback in producer prices will likely feed into softer consumer price expectations and reduce pressure on the Fed to tighten further. In the short term, traders should expect a bearish tilt on inflation-linked assets and potential support for rate-sensitive instruments.