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Service Margins Soften Further
Final demand services slipped 0.2%, the largest decline since July 2024. Weaker margins in trade services, which fell 0.7%, were the primary drag. Transportation and warehousing services also eased 0.6%. However, core services—excluding trade and transportation—rose slightly by 0.1%, supported by gains in legal and freight services. The index for final demand excluding food, energy, and trade services still rose 0.1% on the month and 3.4% over the past year, indicating persistent stickiness in non-commodity inflation.
At earlier production stages, intermediate demand goods and services also showed weakness. Unprocessed goods prices plunged 4.1%, led by a 7.5% drop in foodstuffs and a 3.3% slide in energy inputs. Processed goods were flat overall, with gains in metals offsetting fuel declines. Service prices for intermediate demand ticked down 0.1%, pulled lower by loan services and retail property rents.
Demand Weakness Broadens Across Production Flow
All four stages of intermediate demand posted declines, with stage 3 demand down 1.0%—the sharpest drop since May 2023. Goods inputs to this stage fell 2.2%, reflecting broader easing in raw material costs. Stage 2 and stage 1 indexes also contracted, reinforcing signals of decelerating pipeline pressures.
Market Forecast: Bearish Near-Term Pressure on Inflation Expectations
March’s PPI data points to easing input costs, especially in energy and food, with modest underlying inflation in core services. The broad-based pullback in producer prices will likely feed into softer consumer price expectations and reduce pressure on the Fed to tighten further. In the short term, traders should expect a bearish tilt on inflation-linked assets and potential support for rate-sensitive instruments.
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