US producer prices increased in March from a year earlier by the most in 11 months, though certain categories that feed into the Federal Reserve’s (Fed) preferred inflation gauge were more muted.

The producer price index (PPI) for final demand rose 2.1% from March 2023, Labor Department data showed Thursday. On a monthly basis, the PPI increased a less-than-forecast 0.2% after a sharp advance in February.

For investors and Fed officials, the details offer some relief after a report Wednesday showed faster-than-expected consumer-price growth. Several categories in the PPI report that are used to inform the Fed’s preferred inflation measure - the personal consumption expenditures (PCE) price gauge - such as health care and portfolio management, came in softer.

Stock futures reversed earlier losses, while Treasury yields fell after the report.

The PPI data showed a third straight increase in the cost of services, which is proving to be the main reason why inflation has been stubborn, prompting traders to dial back expectations on how soon the Fed will lower interest rates.

Among the PCE-related categories, prices paid for portfolio management increased 0.5%, while the cost of hospital outpatient care was unchanged. More broadly, services costs rose 0.3%, fuelled in part by higher airfares. Goods prices edged lower. The March reading of the PCE is due later this month.

New York Fed President John Williams said in prepared remarks Thursday the central bank has made “tremendous progress” toward better balance on its inflation and employment goals, but acknowledged policymakers are not yet done.

While central bankers are awaiting a downshift in services inflation as they debate when to lower interest rates, the recent trend in goods deflation is at risk of stalling due to rising prices of oil and some other commodities.

Crude oil prices are hovering near the highest since October on geopolitical and supply concerns, threatening to raise production and transportation costs that could filter through to consumers.

Beyond energy, copper prices are the highest since mid-2022 and costs of iron ore, used in steel-making, are starting to rise.

Supply managers are taking notice. The latest survey from the Institute for Supply Management showed a manufacturing prices-paid metric rose to the highest level since July 2022 at the same time production rebounded.

Stripping out food, energy and trade services, which is an even-less-volatile PPI metric, prices increased 0.2% after a downwardly revised gain a month earlier.

Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, fell.

A separate report Thursday showed continuing claims for unemployment benefits rose to 1.82 million in the week ended March 30, the highest level in more than two months. Meanwhile, initial applications decreased to 211,000 last week. 

  - Bloomberg