Inflation Moderating In March As Supplier Prices Fall

There was a 0.5% decline in producer prices from the previous month, which was the largest drop since April 2020.

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In March, U.S. supplier prices fell for the first time in nearly three years, which is another sign that inflation is beginning to moderate in the country.

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According to the Labor Department's Labor Department on Thursday, the producer-price index, which currently measures the level of supply in different areas of the economy, fell 0.5% in March from the prior month, the biggest monthly decline since April 2020.

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There has been a significant slowdown in supplier price growth over the past year, but they are still above pre-pandemic levels, despite the level of prices rising 2.7% from a year earlier. There was an increase of 4.9% in the PPI in February compared to the same month last year. 

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If firms pass along easing costs to consumers, a cooling in supplier prices could be a sign that consumer inflation is on the way out. As a result of the Federal Reserve's expansionary monetary policy, consumer prices rose 5% in March from a year ago, extending a cooling trend but still considerably above the Federal Reserve's 2% inflation target. Next month, the Federal Reserve is expected to consider raising interest rates again in order to keep inflation at elevated levels, even excluding volatile food and energy costs.

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Matthew Martin, a senior economist at Oxford Economics in the United States, said that he expects the impact of the Federal Reserve's previous rate hikes to increase the effect on business and consumer demand throughout the remainder of the year.

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Assuming that the volatile food and energy costs are excluded from the PPI, the PPI is down 0.1% over the prior month, but up 3.4% over a year ago. There was a slowdown in the year-over-year reading as compared to the figure for February. 

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A decline in the prices of goods was a major contributor to the reduction in the prices of gas, diesel, and residential natural gas supplied to the market in March as a result of the decline in goods prices. A more modest decline in the services supply index was contributed to by a decline in the cost of warehousing, as well as in the wholesale of machinery and vehicles. 

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Earlier on Thursday, the Labor Department reported that worker claims for unemployment benefits increased last week, but maintained levels near those of last year, indicating despite the layoffs announced by large employers as well as the stresses affecting the banking sector, the labor market remains healthy.

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There was an increase of 11,000 in initial jobless claims last week, covering a seasonally adjusted 239,000 people, a proxy for layoffs. As recently as last month the reading had reached its highest level of the year, down from the previous month's peak.

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Despite more Americans seeking employment, the hot labor market in March cooled a bit as hiring moderated and wage growth eased. Construction, manufacturing, and retail sectors that boomed early in the pandemic lost jobs last month. As the banking sector has been in turmoil, concerns have been raised about a pullback in lending to slow growth this year.

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