U.S. wholesale prices dropped last month, showing that inflation pressures are easing. However, President Donald Trump’s trade wars create uncertainty, with new tariffs being introduced by both China and the U.S.
The producer price index, which tracks inflation before it reaches consumers, decreased by 0.4% from February. This was the first drop since October 2023, according to the Labor Department. From a year ago, producer prices increased by 2.7%, down from 3.2% in February and lower than the expected 3.3%. Gasoline prices fell by 11.1%, and egg prices, which had soared due to bird flu, dropped by 21.3%.
Excluding the more volatile food and energy prices, known as core wholesale inflation, dropped by 0.1% from February, the first decrease since July. Year-over-year, core producer prices rose by 3.3%, which was lower than economists had predicted.
This report follows the previous day’s release of consumer-level inflation data from the Labor Department. The consumer price index rose by just 2.4% from March 2024, marking the smallest annual increase since September. Core consumer prices posted their smallest increase in nearly four years.
The outlook for inflation is complicated by Trump’s trade wars. He is imposing a 145% tariff on Chinese imports and has placed a 10% tariff on most other foreign imports, with the possibility of an increase after 90 days.
On Wednesday, China responded by announcing it would raise tariffs on U.S. goods from 84% to 125%. This move is part of the escalating trade war between the two largest economies, which has shaken markets and raised concerns about a global slowdown.
These trade barriers are expected to increase prices as importers will likely pass along their higher costs.
An aerial view of cars waiting for shipmentAlthough the inflation data this week is better than expected, the tariffs from both the U.S. and China are expected to slow this trend, according to Carl Weinberg, chief economist at High Frequency Economics. “This good news will not last very long,” Weinberg said. “Tariffs will boost the prices of all imported producer inputs—goods, not services (yet)—and the effect of tariffs will be visible in April data due for release on May 15.”
Major U.S. companies are already preparing for potential damage. Walmart has lowered its expectations for operating income for the first quarter, and Delta Air Lines has withdrawn its financial forecasts for the year.
Shares of major retailers like Target and Macy’s have fallen significantly this year. Delta’s stock has dropped by 35% in 2025.
Weinberg pointed out that new inflation data will be released in mid-May, just after the U.S. Federal Reserve holds a meeting to discuss interest rates. This has become a more difficult decision for the Fed, given the changes in global trade.
Minutes from the Fed’s February meeting, released this week, showed that the central bank may keep interest rates unchanged if inflation stays high, or cut rates if economic growth slows and unemployment rises.
However, if both happen at the same time, the Fed could face difficult decisions. Rising unemployment typically signals a recession, and the Fed would normally cut rates to stimulate the economy. But it may be reluctant to do so if inflation is rising, as the Fed usually tries to cool inflation by holding rates steady or increasing them if needed.
