US producer inflation muted in March before import tariffs blast

US producer prices notched their first monthly decline in nearly 1-1/2 years in March as gasoline prices plunged, but tariffs on imported goods are expected to significantly boost inflation in the coming months.

Trade tensions have escalated between the United States and China, the main source of imports, making last month’s producer price index report published by the Labor Department on Friday dated. The impact of tariffs is already evident in surging prices for steel mill products.

President Donald Trump this week hiked duties on Chinese goods to 125%, even as he delayed reciprocal tariffs on other trade partners for 90 days. Beijing on Friday retaliated with a 125% tariff of its own. Trump has maintained a 10% blanket duty on almost all US imports as well as a 25% tariff on motor vehicles, steel and aluminum.

“The March PPI report says next to nothing about the inflation outlook, which depends overwhelmingly on tariffs,” said Bill Adams, chief economist at Comerica Bank. “Inflation will accelerate considerably if the tariffs stay in place.”

The producer price index for final demand dropped 0.4% last month after an upwardly revised 0.1% gain in February, the Labor Department’s Bureau of Labor Statistics said. Economists polled by Reuters had forecast the PPI rising 0.2% after a previously reported unchanged reading in February.

In the 12 months through March, the PPI increased 2.7% after advancing 3.2% in February.

A 0.9% drop in goods prices accounted for more than 70% of the decrease in the monthly PPI. Last month’s decline in goods prices was the largest since October 2023 and followed a 0.3% gain in February.

Goods prices were depressed by an 11.1% tumble in the cost of gasoline. Concerns about slower global economic growth because of trade wars have weighed on oil prices.

Wholesale food prices dropped 2.1% amid decreases in eggs, beef and veal as well as fresh and dry vegetables.

But prices for steel mill products jumped 7.1%. Excluding the volatile food and energy components, goods prices increased 0.3% for a second straight month.

The anticipated surge in inflation could, however, be tempered somewhat by softening domestic demand, evident in March’s consumer price report that showed monthly declines in airline fares as well as hotel and motel room prices.

That was replicated in the PPI report. Wholesale airline fares tumbled 4.0% after being unchanged in February, while the cost of hotel and motel rooms dropped 1.2%.

The declines more than offset moderate increases in portfolio management fees and healthcare costs, resulting in services prices falling 0.2% after being unchanged in February.

Portfolio management fees, healthcare, hotel and motel accommodation and airline fares are among the components that go into the calculation of the core Personal Consumption Expenditures price index, one of the inflation measures tracked by the Federal Reserve for its 2% target.

Economists estimated the core PCE price index rose 0.1% in March after jumping 0.4% in February. That would slow the annual increase in core inflation to 2.6% from 2.8% in February.

The dollar fell against a basket of currencies. U.S. Treasury yields rose.

The tariffs, which have hammered financial markets and boosted consumers’ inflation expectations, have raised the odds of a recession in the next 12 months. Consumer and business sentiment has also tanked.

‘Considerable turbulence’: JPMorgan Chase CEO Jamie Dimon said on Friday that US Treasury bonds remained a safe place in an unpredictable world as he warned of “considerable turbulence” facing the economy.

The big US bank reported higher quarterly profits in results overshadowed by upheaval in financial markets as equity markets have churned amid gyrations in the US Treasury market and a falling US dollar.

US bond yields were up again early Friday, indicating weaker demand for US Treasuries, long considered a safe haven asset.

Dimon rejected the notion that US Treasuries were no longer a haven, but acknowledged an impact from recent market volatility.

“It does change the nature a little bit from the certainty point of view,” Dimon said in a conference call with reporters.

“But it doesn’t take away the fact that if you’re going to invest your money in something, America is still a pretty, pretty good place in this turbulent world.”

The volatility in the Treasury market has been accompanied by a drop in the US dollar that analysts attribute to a weakening US economic outlook and to questions about President Trump’s fluctuating trade policy.

Dimon’s comments came as the giant US bank reported first-quarter profits of $14.6 billion, up nine percent from the year-ago level in results that topped analyst expectations.

Agencies