• Prior was 3.4% y/y
• PPI M/M +0.5% vs +1.1% expected
• Prior +0.7% (revised to +0.5%)

Core PPI

• Core PPI Y/Y +3.8% vs +4.2% expected
• Prior +3.9% (revised to 3.8%)
• Core PPI M/M +0.1% vs +0.5% expected
• Prior Core PPI MoM +0.5%(revised to +0.3%)
• PPI Ex Foor/Energy/Trade YoY 3.6% vs 3.5% last month
• PPI Ex Food/Energy/Trader MoM +0.2% vs +0.5% last month

The March PPI came in well below consensus on both measures — 4.0% year-over-year versus the expected 4.7%, and 0.5% month-over-month versus the expected 1.1%. Given that the forecast was built around an anticipated energy surge, the interesting question is where the miss came from, because energy actually did spike dramatically.

Final demand energy rose 8.5% month-over-month, driven by gasoline (+15.7%), diesel (+42.0%), jet fuel (+30.7%), and home heating oil (+39.4%). These are big numbers, but if the consensus was modeling an even larger pass-through from crude, the miss partly reflects crude oil’s 12-month gain of 12.3% being more moderate than refined product moves — and natural gas actually collapsed 51.7% on the month at the unprocessed level, which was a massive drag on the intermediate demand side. So the energy story was a tale of two markets: refined products surged, but natural gas cratered, partially offsetting the headline impact.

Note that US tariffs were dropped just ahead of March. The Supreme Court struck down the sweeping IEEPA tariffs on February 20 in a 6-3 decision. which means the March PPI data reflects an economy where the major tariff regime had just been invalidated. Trump immediately replaced them with a 10% global tariff under Section 122 of the Trade Act of 1974, but that’s dramatically lower than the IEEPA tariffs had been.

Services were a big surprise. Final demand services came in at 0.0% month-over-month, down from +0.3% in February. Services carry about 68% of the final demand weight, so this was the single biggest source of the miss. A few dynamics drove it. Trade margins declined 0.3%, with food and alcohol wholesaling margins dropping 6.0% and fuels and lubricants retailing falling 10.2%. The retailing margins decline is notable because it suggests retailers absorbed some of the energy cost increase rather than passing it through — exactly the opposite of what a simple cost-push model would predict. Meanwhile, the “other services” category (services less trade, transportation, and warehousing) rose just 0.1%, with categories like securities brokerage, deposit services, and residential property brokerage commissions all falling.

Transportation and warehousing services gained 1.3%, boosted by airline passenger fares (+2.8%) and truck freight (+1.0%), but at only about 5% of the final demand weight, this couldn’t offset the drag from trade margins and flat core services. Notably, real-time airfares are up 30-40% for future dates as energy is passed through, so this will come.

The best news in the report was food as final demand foods fell 0.3%, with fresh and dry vegetables dropping 10.7% and crude consumer foods plunging 10.0%. This worked against the headline number as well.

The core measure tells the real story. Final demand excluding foods, energy, and trade services — the “super core” PPI — rose just 0.2%, way down from 0.5% in both January and February. This suggests that underlying producer-level inflation momentum actually decelerated in March.

In short, the consensus appears to have overweighted the crude oil spike and underestimated three offsetting forces: the natural gas collapse, the removal of tariffs, and a broader deceleration in core services inflation. The energy pass-through was real but narrower than expected, and the rest of the economy’s pricing power actually softened. The bad news is that much of the energy price rise is still in the pipeline and Hormuz still isn’t open.