US producer prices fall on weak services costs

[WASHINGTON] US producer prices unexpectedly fell in March as rising energy prices were offset by a decline in the cost of services, pointing to tame inflation that supports the Federal Reserve's cautious approach to raising interest rates.

The Labour Department said on Wednesday its producer price index slipped 0.1 per cent last month after dropping 0.2 per cent in February. In the 12 months through March, the PPI dipped 0.1 per cent after being unchanged in February.

Economists polled by Reuters had forecast the PPI advancing 0.2 per cent last month and gaining 0.3 per cent from a year ago.

Weak producer prices suggest overall inflation will remain below the Fed's 2 per cent target for a while. Tame inflation is a key factor in the US central bank's policy of gradually raising interest rates even as the labour market tightens.

The Fed hiked its benchmark overnight interest rate in December for the first time in nearly a decade and policymakers recently forecast only two more rate hikes this year.

Inflation has been dampened by a buoyant dollar and cheaper oil prices. Last month, energy prices rose 1.8 per cent, with gasoline prices surging 7.1 per cent in what was the largest increase since May 2015. Energy prices fell 3.4 per cent in February.

Wholesale food prices fell 0.9 per cent last month. Prices for services fell 0.2 per cent, the first decline since October, after being unchanged in February.

A 0.5 per cent drop in margins for final demand trade services accounted for more than 80 per cent of the decline in prices for services.

A key measure of underlying producer price pressures that excludes food, energy and trade services was unchanged last month after edging up 0.1 per cent in February.

The so-called core PPI was up 0.9 per cent in the 12 months through March after rising by the same margin in February.

REUTERS