U.S. March PPI records largest monthly decline since October 2023. Is this a turning point for inflation or a tariff trap?

The latest data released by the US Department of Labor on Friday shows that the Producer Price Index (PPI) for March fell sharply by 0.4% month-on-month, marking the largest single-month decline since October 2023. The previous month's data was revised to a slight increase of 0.1%, while the market expectation was an increase of 0.2%. Excluding the volatile food and energy prices, the core PPI unexpectedly fell by 0.1%, lower than the expected increase of 0.3%, indicating that the inflation indicator monitored closely by the Federal Reserve remains weak. This data release comes at a time when the US price situation is undergoing a turnaround. The Consumer Price Index (CPI) released the day before showed a month-on-month decline in overall prices for the first time since 2020. However, analysts point out that the lagging effects of the recent tariff policy adjustments by the Trump administration may push up inflation pressures in the coming months. The timeline of the tariff policy is worth noting: in early February, the US government first imposed a 10% tariff on imports from China, and after China took retaliatory measures, Trump announced in early March that the total tariff on Chinese goods would be raised to 145%. Earlier this week, the government announced a 90-day suspension of additional tariffs on most trading partners, instead implementing a uniform 10% import tariff, and also imposed new tariffs on aluminum and steel products starting on March 12. The transmission effects of these policies on prices are expected to be more significant in the April PPI data. The current PPI structure shows clear differentiation: Energy and Food: Energy prices plummeted by 4% month-on-month, while food prices fell by 2.1%, becoming the main drag on PPI. Crude oil prices fell to the $60 per barrel range, hitting a four-year low, and key raw materials in the Bloomberg Metals Index such as aluminum and copper also hovered at lows since 2020. Core goods: Excluding food and energy, core goods prices rose for the second consecutive month by 0.3%, marking the largest increase in two years. Leading the way were oil field equipment, medical devices, and paper products. Service prices: Service prices fell by 0.2% month-on-month, marking the largest decline since July, reflecting continued pressure on profit margins in wholesale and retail sectors, with the TV, clothing, and automobile retail sectors experiencing the most significant margin compression. It is worth noting that intermediate demand processed product prices remained flat, while the cost of unprocessed raw materials fell significantly by 4.1%. This "upstream price reduction, downstream pressure" pattern reflects both deflationary pressures in the commodity market and suggests that if end demand picks up, businesses may have more room for pricing adjustments. Although the risk of increased import costs due to tariffs persists, the current downturn in the commodity market provides businesses with a buffer to absorb the tax pressure. Subsequently, it will be crucial to focus on the Personal Consumption Expenditures Price Index (PCE) to be released later this month as a core reference for the Fed's monetary policy, its performance will directly affect the direction of the June interest rate decision. Whether the April PPI data can confirm the inflation transmission effects of the tariff policy will be a key factor in assessing the risk of stagflation in the US economy.