In March 2025, the US Producer Price Index (PPI) showed a monthly decline of 0.4%, compared to a prior increase of 3.2% and an expected rise of 0.2%. Excluding food and energy, the year-on-year figure was 3.3%, slightly lower than the anticipated 3.6%.
Monthly changes for the same category indicated a decrease of 0.1% instead of the expected increase of 0.3%. Additionally, when excluding food, energy, and trade, the PPI was at 3.4%, down from 3.5%.
Key contributors to the overall decrease included a 0.9% drop in final demand goods, with energy prices falling by 4.0% and food prices decreasing by 2.1%. Notably, gasoline prices dropped by 11.1%, responsible for two-thirds of the goods decline.
input cost pressures
That sequence of data paints a rather clear picture. We’re observing a notable softening in input cost pressures for producers, which has started to emerge more visibly across several core categories. Final demand for goods saw its sharpest step down in months, and much of it can be traced directly to a plunge in fuel costs. Gasoline’s role cannot be understated here—it accounted for the majority of the broad goods decline, sliding over 11%. That isn’t a trivial number, and it hints at rapid adjustments in wholesale pricing mechanisms that tend to influence downstream consumer goods later.
As for the core PPI, which trims out food and energy volatility, the figures are still above levels policymakers may find comfortable but nonetheless show deceleration. The month-on-month reading fell rather than increased, bucking typical seasonal trends. That subtle shift, especially following a previously much stronger print, deserves attention. With food also softening by more than two points, it begins to suggest that easing price pressures are not confined solely to fuels.
Indeed, when we adjusted for food, energy and trade, the number is still hovering in the mid-threes, marginally down from prior readings. The pace is slower, yes, but it has not materially broken lower yet. Inflation on the production side is not retracting swiftly; it’s hesitating lower. Margins across certain supply chains may begin to widen, particularly where input costs being passed on to consumers start to lag behind producer relief.
pricing strategies
So, what is one meant to do with such a development?
Pricing of future contracts, especially those tied to inflation expectations or input-sensitive sectors, must now consider the likelihood that producer pressure will not reinforce consumer price trajectories in the near term. The market has been tightly watching these secondary inflation indicators for forward guidance, and now the compass tilts.
Volatility on either side of the inflation trade could shift as hedging positions unwind disproportionately. Traders who had bet on persistent inflation through PPI pass-throughs will need to reassess quickly, and perhaps partially reverse, those structures. Consider sector-specific moves—industries deeply linked to fuel cost inputs may be particularly responsive. Watch for repair in sentiment where margins had been compressed over the past year.
Moreover, short-dated rate expectations might become further dislocated from terminal projections. With this data cooling more rapidly than anticipated, there could be positioning flows away from aggressive tightening bets. We interpret this as a prompt to comb through correlation breakdowns across fixed income and commodities that had tracked tightly over reopening years.
Powell’s team will likely take note but move cautiously. The labour market remains a buffer, and service-side inflation continues to be layered over these producer metrics. Nonetheless, this weaker base for upstream prices could dial back fears of a renewed cost-push spiral.
What we’re witnessing is not just a one-off deflationary impulse—it’s a signal. Not overwhelming, not conclusive, but measured. Real economies absorb this kind of shift unevenly, and models that weight recent volatility too heavily may misfire.
Charting strength in rate-sensitive names and underweights positioned against moderating producer pricing could offer near-term opportunity. Dollar strength may also falter slightly—especially with spreads across counterparts in Europe holding more firm. Jointly, these cues give better reason to rebuild exposure selectively where macro pressures are relaxing.
Further price action in energy futures—especially gas and heating oil—should be monitored for spill-through. Where prior hikes created distortions in hedging costs, scaling back directional exposure feels less risky now than it did weeks ago. We may see implied volatility fade slightly from post-winter highs, creating brief inefficiencies in dovish pricing corridors.
Let us also mention that while some of us may have focused too narrowly on service-sector stickiness, this drop in goods PPI reroutes some of that attention. Ancillary metrics—inventory costs, warehousing rates—may move sooner than anticipated.
All told, production signals like this speak plainly. Cool inputs lead to quieter outputs, and we must adjust positions to reflect where prices are softening faster than narratives have kept up.
