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First Cut: Final Demand PPI higher than expected in March on energy costs

The Final Demand Producer Price Index (PPI) rose 0.6% in March from February, and was up 2.2% compared to a year ago.  The PPI excluding food, energy, and trade services was flat month-over-month and up 2.0% compared to March 2018. Although the PPI is a less closely watched measure of inflation, it is consistent with other data on prices. Energy costs (up 5.6%) were the main driver behind the increase, but trade services (up 1.1%) rose solidly as well. Food prices (up 0.3%) were less of a factor.

In the year-over-year increases, it is clear that trade services (up 3.9%) have consistently helped keep the core level of producer prices higher. Commodities continue to be more variable and their impacts more short term.

Taken in context with the March CPI which told a similar pricing story. When the FOMC meets on April 30-May 1, they will have convincing evidence that underlying inflation is holding around the 2% objective and that the present tame inflation should be sustained. At this time the FOMC is expected to remain on hold with interest rate policy.

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