Wholesale inflation rose 11.2% annually in March, driven largely by an increase in the price of gasoline, the Bureau of Labor Statistics reported on Wednesday.

The increase was the highest on record dating back to 2010. On a monthly basis, the index rose 1.4%, above estimates of a 1.1% gain.

Prices for diesel fuel jumped 20.4% for the month. In contrast, prices for beef and veal fell by 7.3%

The producer price index report follows Tuesday’s consumer price index showing costs rose 8.5% in March on an annual basis, again fueled by increases in the price of energy, particularly gasoline.

Both reports will do little to change the narrative from the Federal Reserve that interest rates are on the rise to combat the worst inflation since the administration of Ronald Reagan. The central bank raised rates by 25 basis points in March and is widely expected to increase them again, this time by 50 basis points, in May.However, there was one bright spot in the consumer price index for March, with the rate of core inflation, which strips out energy and food costs, dropping to 0.3% in March from 0.5% in February as prices for used cars fell. Meat prices also slowed their growth.

“Used car prices fell 3.8% in March but are still 35.3% above a year ago and over 48% from March 2020,” said Jeffrey Roach, chief economist at LPL Financial. “As global trade and shipping ports improve, auto manufacturing could likely get a respite.”

“As more cars come on the lots, consumers will have more available options and dealers will have more comfortable inventory levels, providing relief in the strained car market,” Roach added.

He noted that “starting in February 2016, new and used vehicle prices declined for over two years while the economy continued to grow. This is definitely a ‘goldilocks’ scenario as prices cooled off without a hard landing.”

But the future course of inflation, and the overall economy, depends at this point upon the direction of Russia’s war on Ukraine. JPMorgan Chase, a leading global bank, reported first quarter earnings early Wednesday and noted a $524 million loss from the effects of sanctions and disrupted bond markets caused by the war. The bank said it was adding to its credit reserves amid concern for the economy.
“We remain optimistic on the economy, at least for the short term – consumer and business balance sheets as well as consumer spending remain at healthy levels – but see significant geopolitical and economic challenges ahead due to high inflation, supply chain issues and the war in Ukraine,” CEO Jamie Dimon said in announcing the earnings.

Delta and American also gave positive forecasts in their earnings reports, as travelers returned to the skies in the first three months of the year.

Meanwhile, the national average price of a gallon of gas fell to $4.08 Wednesday morning, according to AAA, a 25-cent drop from the $4.33 it reached on March 11 following the war in Ukraine. President Joe Biden is emphasizing steps he has taken to combat surging gas prices, including a drawdown of a million barrels a day from the Strategic Petroleum Reserve and also the lifting of a ban on summertime use of an ethanol additive.

"I’m doing everything within my power by executive orders to bring down the price and address the Putin price hikes," Biden said Tuesday in Iowa where he announced the ethanol move.

By: Tim Smart