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US producer prices fall 0.1 per cent in March

WASHINGTON – U.S. producer prices fell in March for the fifth time in the past eight months, reflecting a drop in food prices which offset the biggest increase in energy prices in 10 months. Even with the increase in energy, inflation remained at modest levels.

The Labor Department said Wednesday that its Producer Price Index, which measures cost pressures before they reach consumers, dropped 0.1 per cent in March after a 0.2 per cent decline in February.

Food costs dropped 0.9 per cent while energy prices increased 1.8 per cent, the biggest jump since last May. The energy increase came after a sustained period of falling prices for gasoline and other energy products.

Overall, producer prices are down 0.1 per cent over the past 12 months while core prices, which exclude food and energy, are up a modest 1 per cent.

The Federal Reserve, which meets at the end of this month, is expected to leave interest rates unchanged as policymakers watch for evidence that ultra-low inflation is moving closer to the Fed’s 2 per cent target. A key price gauge followed by the Fed has been running below the central bank’s preferred inflation target of 2 per cent for nearly four years.

The 1.8 per cent rise in energy costs was the biggest jump since a 5.7 per cent increase last May. Starting in July, energy prices began falling again as global oil prices resumed a steep slide that began in mid-2014.

The 0.9 per cent decline in food costs was led by a 27.1 per cent plunge in egg prices, the biggest one month drop since December. The price of vegetables and fruit was also down.

The Fed raised its key interest rate for the first time in nearly a decade in December but left rates unchanged at their meetings in January and March. While there had been expectations the Fed would raise rates four times this year, the Fed revised its projections last month to show only two rate hikes are expected this year.

The cutback in rate hike expectations has occurred because of a slowdown in the global economy and turbulent financial markets at the beginning of the year which prompted concerns about prospects for the U.S. economy.