U.S. wholesale prices dropped in March, offering another sign that inflation may be cooling. However, escalating trade tensions between the U.S. and China now threaten that progress. President Donald Trump’s aggressive tariff policy adds more uncertainty to the outlook.
According to the Labor Department, the producer price index fell 0.4% from February. This marked the first monthly decline since October 2023. On a yearly basis, prices rose 2.7%, lower than February’s 3.2% gain. Economists had predicted a 3.3% increase.
Gasoline prices led the drop, plunging 11.1% from February. Egg prices also dropped sharply, falling 21.3% due to easing bird flu impacts.
Even core wholesale prices, which exclude food and energy, declined. The 0.1% fall was the first since July. Compared with a year ago, core prices rose 3.3%, below economists’ expectations.
These numbers came just a day after a separate inflation report brought more good news. The consumer price index rose only 2.4% from March 2024. That was the smallest annual gain since September. Core consumer prices also saw their weakest rise in nearly four years.
Yet, trade disputes now cloud the inflation picture. Trump recently imposed a 145% tariff on Chinese goods. He also introduced a 10% tax on imports from most other countries. This tax may increase after 90 days.
In response, China raised its tariffs on U.S. products to as high as 125%. These tit-for-tat moves could fuel price hikes and global slowdowns. Many economists warn that trade wars impact inflation.
Carl Weinberg, chief economist at High Frequency Economics, echoed these concerns. “This good news will not last very long,” he warned. He believes the impact of tariffs will show in April’s inflation data.
U.S. businesses are already reacting. Walmart pulled its income forecast for Q1. Delta Air Lines dropped its full-year financial guidance. Stock prices for major retailers and airlines have fallen in 2025.
Economists worry that trade wars impact inflation trends. The Federal Reserve now faces tough decisions. It must weigh inflation risks against possible job losses.
Minutes from the Fed’s February meeting show growing concern. Officials suggested they may hold rates steady if inflation stays high. However, if growth slows and unemployment rises, they may need to cut rates.
That scenario could present major challenges. Trade wars impact inflation, but also threaten jobs and economic stability.
The next inflation report arrives in mid-May, shortly after the Fed meets. Investors and analysts will closely watch for signs of how tariffs influence prices. The Fed’s response will be critical in steering the U.S. economy forward.
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