By Natalie Mojica
The Bureau of Labor Statistics reported the producer price index recently, a measure of the prices paid by wholesalers, and revealed that the prices that goods and services producers receive rose in March at the fastest pace in recorded history. The producer price index (PPI) has increased final demand increase 1.4% in March and has increased 11.2% from a year ago. In addition, it was 1.1% higher than the Dow Jones estimate.
The drastic increase in producer prices signaled a strong consumer demand for goods and services as well as the impact of the government stimulus. Supply-chain disruptions also continue to push prices higher. Overall, customers are paying more for daily necessities like groceries and gasoline.
Food, energy, and trade services notwithstanding, core PPI has risen 0.9% monthly—doubling the expected 0.5% projections and becoming the biggest monthly gain since January 2021. Core PPI has also increased 7% yearly.
The PPI is considered a forward-looking inflation measure and this news come after the consumer price index for March increased 8.5% over the past year—another record-breaking data point since 1981. For producers, prices for final demand goods increased with a 2.3% monthly rise while service prices increased 0.9%–up by 0.06% from February.
Energy prices increased the most for the month, rising 5.7% while food increased 2.4% This is unsurprising considering diesel fuel prices increased 20.4% in the past month. . U.S. economist Mahir Rasheed, predicts, “The severe imbalance between robust demand and handicapped supply will persist throughout [the second quarter], keeping producer-price inflation sticky and elevated until price pressures start to decelerate in the latter part of 2022,”
While job growth and inflation have passed the Fed’s goal of 2%, many Fed officials are thinking of raising rates by 0.5 instead of 0.25 at the next meeting in May. Fed minutes from its March meeting said, “Many participants noted that one or more [0.5-point] increases in the target range could be appropriate at future meetings, particularly if inflation pressures remained elevated or intensified.”
As for small businesses, they reported raising their average selling price by the highest margin seen since the National Federation of Independent Business started conducting surveys. Half of the respondents indicated they planned to continue raising prices in the next three months, plus the number of small businesses that listed inflation as their biggest problem increased to 31%.
