Producer prices rose in March but still came in significantly below expectations, despite the war in Iran, which has rekindled inflation fears.
The Producer Price Index (PPI) demand increased 0.5% in March, which was well below the Dow Jones consensus estimate for 1.1%, according to a Bureau of Labor Statistics (BLS) report.
When excluding food and energy, core PPI grew just 0.1%, falling short of the 0.5% forecast.
The services side of inflation, a key focus for Federal Reserve policymakers, was flat on a month-over-month basis.
Final demand rose 4% for the 12 months ended in March, which is the largest 12-month advance since the 4.7% increase in February 2023.
Year-over-year, prices for final demand excluding foods, energy and trade services rose 3.6%, the largest 12-month growth since moving up 3.6% in November 2025.
The increase on the producer end of prices was less than the 0.9% gain in prices consumers actually paid for the month. Core consumer prices also were soft, rising just 0.2%.
Some of these components will feed directly into the Federal Reserve’s preferred inflation gauge and the personal consumption expenditures index.
When combining the consumer and producer price indexes and how they feed into the PCE inflation reading, Bank of America estimated that March will be around 3.1% annually for headline and 3.5% for core. That compares with respective levels of 2.8% and 3% in February.
Energy drove the PPI gain as expected.
The gasoline index surged 15.7%, accounting for around half the gain in the PPI, according to the BLS.
Diesel prices alone jumped 42% while jet fuel increased 30.7%.
As a result, goods prices increased 1.6%, though that was offset by flat services costs, which Fed officials view as a key gauge as it excludes tariff and war impacts.
Markets have had little reaction to the report, with the stock market futures on course for modest gains at the open. Treasury yields also experienced little change.
As a result, goods prices increased 1.6%, though that was offset by flat services costs, which Fed officials view as a key gauge as it excludes tariff and war impacts.
Since the ceasefire in the Iran war, energy prices have eased a little. U.S. crude has fallen nearly 15% over the past week, despite being up nearly 70% year to date.
Fed officials have expressed some caution about the war’s impact but generally see inflation continuing to ease through the year on its way back to the central bank’s 2% target.
Still, markets expect the Fed to stay on hold through the year, pricing in about a one in four chance for a cut through December.
