Wholesale Prices in U.S. Unexpectedly Fall as Margins Shrink

Wholesale prices in the U.S. unexpectedly fell in March for a second month, showing inflation is still well-contained as Federal Reserve officials weigh whether further increases in the benchmark interest rate are warranted.

The 0.1 percent drop in the producer-price index followed a

0.2 percent decrease in February, a Labor Department report showed Wednesday in Washington. Over the past 12 months, wholesale prices fell 0.1 percent.

Dollar appreciation that’s been slow to wane amid sluggish global growth is helping to mute inflation at all stages. The absence of bigger gains is keeping Fed officials patient on interest-rate increases while inflation has lingered below their goal for four years.

“Underlying inflation momentum remains quite weak, and that has more to do with the broader picture of wage growth, economic performance and imported disinflation,” Millan Mulraine, deputy head of U.S. research and strategy at TD Securities USA LLC in New York, said before the report. “It’s likely to be fairly subdued for some time.”

The median estimate in a Bloomberg survey of 65 economists called for a 0.2 percent increase. Projections ranged from increases of 0.1 percent to 0.6 percent.

A report from the Commerce Department showed sales at U.S. retailers also unexpectedly fell in March, raising concern consumer spending is losing momentum. The 0.3 percent drop in purchases followed little change the prior month, the figures showed. The median forecast of 81 economists surveyed by Bloomberg called for a 0.1 percent gain.

Wholesaler Margins

The decrease in the producer price index was paced by a 0.2 percent drop in the cost of services, the first decline since October. Three-quarters of that setback was traced to a 1.9 percent plunge in margins at machinery and equipment wholesalers, the report showed.

Energy costs climbed 1.8 percent, the most since May. Food prices decreased 0.9 percent.

Excluding food and energy and also eliminating trade services, producer costs were little changed after rising 0.1 percent in February. Some economists prefer this reading because it strips out the most volatile components of PPI, such as retailer and wholesaler margins.

The producer price gauge is one of three monthly inflation reports from the Labor Department. The consumer price index, due for Thursday release, rose 0.2 percent in March, according to the Bloomberg survey median. A report Tuesday showed the cost of imported goods increased 0.2 percent last month, short of the 1 percent median projection of economists polled by Bloomberg.

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