U.S. wholesale prices unexpectedly dropped 0.4% in March, according to a U.S. Bureau of Labor Statistics (BLS) report released Friday. Economists surveyed by Dow Jones had been predicting an increase of 0.2%, according to CNBC.
The March decline follows a 0.7% rise over the two preceding months in the seasonally adjusted Producer Price Index, which measures the average change in the selling prices received by domestic producers for their goods and services.
The March report does not reflect the impacts of the Trump administration’s April tariff announcements and the escalating trade war between the U.S. and China.
According to the Labor Department data, 70% of the March turnaround is attributable to prices for final demand goods, which fell 0.9%. The index for final demand services declined 0.2%.
But three-quarters of the goods index decline can be traced to gasoline prices, which dropped 11.1% in March, the Labor Department reported. Food prices decreased 2.1% in March, while overall energy prices were down 4%. Less food and energy, prices for final demand goods rose 0.3% in March.
The March wholesale price declines — combined with Thursday’s BLS report showing that the core inflation rate hit a four-year low of 2.8% in March — would typically be viewed as favorable signs for mortgage rates, as the Federal Reserve is more likely to lower benchmark interest rates when inflation cools.
But on a more downbeat note, the University of Michigan released a survey on Friday showing that consumer sentiment fell nearly 11% in April and overall inflation is predicted to rise to 6.7% over the next year, sparking concerns about an economic recession.
John Williams, president and CEO of the Federal Reserve Bank of New York, said in a prepared speech delivered Friday in Puerto Rico that while shifts in consumer sentiment can occur for a multitude of reasons, “the effects of tariffs and trade policy on the economy are certainly at the top of the list.”
Williams, who serves as vice chairman of the Fed’s Open Market Committee that oversees U.S. monetary policy, said he expects both unemployment and inflation to rise over the next year.
“With this downshift in the pace of growth, I expect the unemployment rate to rise from its current level of 4.2% to between 4.5% and 5% over the next year,” Williams stated. “I expect increased tariffs to boost inflation this year to somewhere between 3.5% and 4%.”
Williams did not directly address future interest rate cuts, saying that “it is simply too early to know the answers,” and “elevated uncertainty poses many questions about the future of the economy and the path of monetary policy.”
But he added that “it is critically important to keep inflation expectations well anchored as we pursue our goals of maximum employment and returning inflation to our 2% longer-run objective.”
