US March PPI final demand 4.0% y/y vs +4.7% expected
<ul><li>Prior was 3.4% y/y</li><li>PPI M/M +0.5% vs +1.1% expected</li><li>Prior +0.7% (revised to +0.5%)</li></ul>Core PPI</p><ul><li>Core PPI Y/Y +3.8% vs +4.2% expected</li><li>Prior +3.9% (revised to 3.8%)</li><li>Core PPI M/M +0.1% vs +0.5% expected</li><li>Prior Core PPI MoM +0.5%(revised to +0.3%)</li><li>PPI Ex Foor/Energy/Trade YoY 3.6% vs 3.5% last month</li><li>PPI Ex Food/Energy/Trader MoM +0.2% vs +0.5% last month </li></ul><p class="font-claude-response-body break-words whitespace-normal leading-[1.7]">The March PPI came in well below consensus on both measures — 4.0% year-over-year versus the expected 4.7%, and 0.5% month-over-month versus the expected 1.1%. Given that the forecast was built around an anticipated energy surge, the interesting question is where the miss came from, because energy actually did spike dramatically.</p><p class="font-claude-response-body break-words whitespace-normal leading-[1.7]">Energy delivered, but not as much as priced in. Final demand energy rose 8.5% month-over-month, driven by gasoline (+15.7%), diesel (+42.0%), jet fuel (+30.7%), and home heating oil (+39.4%). These are big numbers, but if the consensus was modeling an even larger pass-through from crude, the miss partly reflects crude oil's 12-month gain of 12.3% being more moderate than refined product moves — and natural gas actually collapsed 51.7% on the month at the unprocessed level, which was a massive drag on the intermediate demand side. So the energy story was a tale of two markets: refined products surged, but natural gas cratered, partially offsetting the headline impact.</p><p class="font-claude-response-body break-words whitespace-normal leading-[1.7]">Services were the real surprise — completely flat. Final demand services came in at 0.0% month-over-month, down from +0.3% in February. Services carry about 68% of the final demand weight, so this was the single biggest source of the miss. A few dynamics drove it. Trade margins declined 0.3%, with food and alcohol wholesaling margins dropping 6.0% and fuels and lubricants retailing falling 10.2%. The retailing margins decline is notable because it suggests retailers absorbed some of the energy cost increase rather than passing it through — exactly the opposite of what a simple cost-push model would predict. Meanwhile, the "other services" category (services less trade, transportation, and warehousing) rose just 0.1%, with categories like securities brokerage, deposit services, and residential property brokerage commissions all falling.</p><p class="font-claude-response-body break-words whitespace-normal leading-[1.7]">Transportation rose but not enough to compensate. Transportation and warehousing services gained 1.3%, boosted by airline passenger fares (+2.8%) and truck freight (+1.0%), but at only about 5% of the final demand weight, this couldn't offset the drag from trade margins and flat core services.</p><p class="font-claude-response-body break-words whitespace-normal leading-[1.7]">Food prices actually declined. Final demand foods fell 0.3%, with fresh and dry vegetables dropping 10.7% and crude consumer foods plunging 10.0%. This worked against the headline number as well.</p><p class="font-claude-response-body break-words whitespace-normal leading-[1.7]">The core measure tells the real story. Final demand excluding foods, energy, and trade services — the "core" PPI — rose just 0.2%, way down from 0.5% in both January and February. This suggests that underlying producer-level inflation momentum actually decelerated in March, which the headline consensus apparently didn't account for, being too focused on the energy component.</p><p class="font-claude-response-body break-words whitespace-normal leading-[1.7]">In short, the consensus appears to have overweighted the crude oil spike and underestimated three offsetting forces: the natural gas collapse, the compression of trade margins (retailers and wholesalers eating costs), and a broader deceleration in core services inflation. The energy pass-through was real but narrower than expected, and the rest of the economy's pricing power actually softened.
This article was written by Adam Button at investinglive.com.
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