The hit from energy in March was softened by food and services, which briefly backed off. In prior months, services were the driver.

By Wolf Richter for WOLF STREET.

The energy price spike hit inflation at the producer level in March: The overall Producer Price Index final demand (PPI) accelerated sharply to 4.0% compared to a year ago, the worst since February 2023 (red in the chart).

Month-to-month, the overall PPI jumped by 0.51% (+6.3% annualized), seasonally adjusted. But it had already jumped by 6.1% and 6.8% annualized in February and January before the energy price spike hit (blue in the chart), according to data from the Bureau of Labor Statistics today.

What’s surprising is that it didn’t jump more. Turns out, there were several factors that kept the March month-to-month increase from blowing out: While energy prices spiked in March from February, prices of food that manufacturers buy fell, and the PPI for services that producers buy, the biggie – 68% of overall PPI – was nearly unchanged month-to-month after three big increases in a row because its component “trade services” (accounts for 19% of overall PPI) fell in March from February, the second month of declines, after the two huge spikes in January and December.

Energy prices are always volatile with big jumps and plunges. The 8.5% spike in March (165% annualized) came on top of the jump in February.

This pushed the year-over-year increase to 11.2%, from a decline in the prior month.

The energy PPI is so volatile with such huge spikes and plunges that it’s helpful to look at the price level to gain some perspective (the year-over-year percentage changes just cause uninsured whiplash).

The chart shows the price level of the energy PPI. The big spike in March pushed the price level to the highest since the September 2023 spike.

From the peak in mid-2022 through 2025, energy prices plunged but remained far higher than before covid, driven by the soaring costs of electricity.

The PPI for food that producers buy held down the overall PPI: It fell on a month-to-month basis by 0.27%, after the gigantic spike in February of 2.39%, and the plunge in January.

On a year-over-year basis, the food PPI accelerated to 1.5%.

Food prices are also hugely volatile, so it helps to look at the price level. The PPI for food is up by 33% from mid-2020, prices are very high, but they’ve been bumping into a ceiling at these levels, it seems.

The services PPI barely ticked up 0.05% (+0.6% annualized) in March from February, seasonally adjusted, after the big increases in the prior three months.

It caused the six-month services PPI to back off to +4.6%, from 5.8% in February, which had been the worst increase since August 2022.

The services PPI weighs 68% of the overall PPI, and the nearly flat month-to-month reading in March kept the overall PPI from blowing out.

Within the services PPI:

• Trade services (weigh 19% in overall PPI): -0.3% month-to-month not annualized, second month in a row of declines, after big spikes of +2.0% each in January and December.
• Transportation & warehousing services (weigh 4.9% in overall PPI) spiked by 1.3% not annualized in March from January, the biggest spike since July.
• Other services (weighs 38% in overall PPI): +0.1%, after the 0.6% jump in the prior month.

Year-over-year, the services PPI decelerated a hair to +3.7%, after four months in a row of acceleration.

The low point, the point of the coolest recent services PPI inflation, was in December 2023 at 1.8%. The inflation rate has more than doubled since then.

Despite the month-to-month squiggles, services prices have been marching relentlessly higher. Since mid-2020, the services PPI has risen by 28%. The chart shows the price level, and its steep trajectory. This is 68% of the overall PPI:

The PPI for finished core goods (goods without food and energy) rose 0.18% (+2.2% annualized), the slowest increase in a year.

Year-over-year, the PPI for finished core goods rose by 3.6%, a slight deceleration from the prior two months.

Core PPI Final Demand, which excludes energy and food components, rose by only 0.09% (1.1% annualized) in March from February, seasonally adjusted, held down by the services PPI.

This small month-to-month increase caused the six-month core PPI to back off a notch to +4.7%, the second worst since August 2022, behind only the +5.5% in February.

Year-over-year, core PPI decelerated a hair to 3.75%.

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