The prices at the production in the United States increased less than expected in March, with the cost of services remaining unchanged, but the rise in energy prices due to the war with Iran has fueled inflationary pressures. The Producer Price Index for final demand rose by 0.5% last month after a revision down of 0.5% in February, according to the Bureau of Labor Statistics on Tuesday.
The increase in energy prices was partially offset by stable service prices. The data from the March PPI likely only showed the initial impact of the conflict in the Middle East. Economists surveyed by Reuters had expected a PPI acceleration of 1.1% after a reported 0.7% increase in February.
In the 12 months leading up to March, the PPI increased by 4.0% after rising by 3.4% in February. Further increases are likely as oil prices climbed to over $100 per barrel on Monday after the U.S. military announced it would block ships leaving Iranian ports.
Oil prices have surged by over 35% since the start of the American-Israeli war against Iran at the end of February. The BLS reported last week that the Consumer Price Index in March had its largest monthly increase in over four years, due to a record jump in gasoline and diesel prices.
The Federal Reserve is monitoring personal consumption expenditure price indices to reach its inflation target of 2%. Before the PPI report was released, economists estimated that core PCE inflation, excluding volatile components such as food and energy, had increased by 0.2% in March after rising by 0.4% for two consecutive months. This would result in a 3.1% year-on-year increase, compared to 3.0% in February. Economists anticipate that the oil shock will have a moderate impact on core inflation.
