'Unlikely To Change Fed's Calculus': 3 Analysts On Implications Of Lower-Than-Expected PPI In March

The producer price index (PPI) fell 0.5% in March, lower than expected, according to data issued bythe U.S. Labor Department.

What Happened: On a year-over-year basis, the PPI number came in at 2.7%, lower than the estimated 3%. With the Consumer Price Index (CPI), and PPI for April due to be released after its next meeting, the Federal Reserve is set to make its decision on rates next month based on this data.

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Bill Adams, chief economist for Comerica Bank, told Benzinga that while PPI slowed more than expected in March due to lower energy prices, core services prices continue to run too hot.

The chief economist noted initial jobless claims rose more than expected in the latest week, suggesting the labor market has cooled over the past six months. Core inflation continues to run too high, which is consistent with the Fed opting for a final quarter percentage point rate hike of this cycle at their next meeting in early May.

"Today’s economic releases are unlikely to change the Fed’s calculus at their May decision, where a quarter percentage point hike is the most likely outcome," Adams said.

Oliver Rust, head of product at Truflation, a company that aggregates independent inflation data, cautioned that while the 0.5% drop in PPI may seem significant, the core PPI, which strips out energy costs and some volatile food items, only decreased by 0.1%.

"If I were a betting man, I would expect PPI to increase again before it comes down to hit prices on the shelf,” Rust told Benzinga.

Rust noted the major drop is primarily due to energy prices and the decline could be precarious as energy costs have already increased since OPEC announced its decision to reduce oil production by over a million barrels per day.

Alfredo Ortiz, president and CEO of Job Creators Network, said to Benzinga that persistently rising wholesale prices hurt small businesses, which tend to operate on "tiny profit margins that high inflation erodes."

Ortiz’s opinion on high inflation is aimed at Congressional Democrats' reckless spending, telling Benzinga that it has diluted the currency, suggesting that nations across the globe are rapidly replacing the dollar as their trading currency due to President Biden's policies.

Ortiz warned that if the dollar loses its status as the world's reserve currency, inflation will turn hyper, potentially leading to a recession.

The March PPI report shows that while inflation is slowing, core services prices continue to run too hot and the labor market is cooling. The Fed is likely to opt for a final quarter percentage point rate hike at their next meeting in early May, but some economists such as Wharton School Professor Jeremy Siegel predict that the Fed will cut rates this year.

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