Morning Market Brief: Friday, April 14, 2023

Producer price pressures ease in March?

U.S. producer prices fell the fastest in March since April 2020. While the drop in producer prices is welcome news, it follows a consumer price report released on Wednesday that showed U.S. inflation is still running at elevated levels, likely prompting the U.S. Federal Reserve Board (Fed) to keep raising interest rates.?

• Producer prices in the U.S. fell by 0.5% in March over the previous month, the sharpest monthly decline since the onset of the pandemic in April 2020.
• A drop in gasoline, electric power, vegetables, and services prices contributed to March’s decline. The 0.3% drop in services prices was also the largest decline since April 2020.
• On a year-over-year basis, producer prices rose by 2.7% in March, slowing from the 4.9% annual rate in February. The core rate, which excludes food and energy prices, also slowed, reaching 3.4% in March.
• Despite the March decline, producer prices remain elevated. The drop was a positive development, particularly for the Fed, as it focuses on bringing down prices. However, prices are still elevated, sparing little relief for households and businesses.
• With producer and consumer prices remaining at unwanted levels, it likely points to another rate increase by the Fed at its next meeting. The Fed has reiterated its commitment to bring inflation back to its 2% target.

The decline in producer prices might be a positive sign for Canadian households and businesses importing many goods and services from the U.S. However, the drop could prove to be short-lived. Much of the decline in March came from energy prices, which are expected to pick back up in the coming months after the Organization of the Petroleum Exporting Countries’ oil production cuts. If prices stay the same or even increase, the Fed might keep hiking interest rates, which would weigh on global equity markets, including those in Canada.?

At?CIBC Private Wealth , we aim to take a comprehensive approach to managing, building and protecting your wealth. If you'd like to discuss this market and economic update in more detail, please get in touch with your advisor any time.