US wholesale inflation fell last month but trade war threatens to reverse that trend

WASHINGTON (AP) — U.S. wholesale prices fell last month in another sign that inflationary pressures are easing. But President Donald Trump’s trade wars cloud the outlook as new, punishing tariffs are launched by Beijing and Washington.

The producer price index — which tracks inflation before it hits consumers — fell 0.4% from February, first drop since October 2023, the Labor Department said Friday. Compared with a year earlier, producer prices rose 2.7%, down from a 3.2% year-over-year gain in February and much lower than the 3.3% economists had forecast. Gasoline prices fell 11.1% from February and egg prices, which had skyrocketed because of bird flu, plummeted 21.3%.

Excluding volatile food and energy prices, so-called core wholesale inflation fell 0.1% from February, the first drop since July. Compared with a year earlier, core producer prices rose 3.3% and lower than economists had forecast.

The report comes a day after the Labor Department delivered good news on inflation at the consumer level. Its consumer price index rose just 2.4% last month from March 2024, the smallest year-over-year gain since September. Core consumer prices posted the smallest year-over-year increase in nearly four years.

The inflation outlook is muddied by Trump’s trade wars. He’s imposing a 145% tax — a tariff — on Chinese imports and is hitting most of the rest of the world’s imports with a 10% levy that might go up after 90 days.

On Wednesday, China retaliated again, announcing that it will raise tariffs on U.S. goods from 84% to 125% — the latest salvo in an escalating trade war between the world’s two largest economies that has rattled markets and raised fears of a global slowdown.

The trade barriers are widely expected to raise prices as importers attempt to pass along their higher costs.

The inflation numbers delivered this week are better than economists has expected, but the retaliatory trade measures launched by both the U.S. and China will likely cool that trend, said Carl Weinberg, the chief economist at High Frequency Economics.

“This good news will not last very long,” Weinberg wrote Friday. "Tariffs will boost the prices of all imported producers 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. corporations are already bracing for potential damage. Walmart scratched its expectations for operating income during the first quarter and Delta Air Lines withdrew its financial expectations for the entire year.

Both companies announced the changes this week, but shares of major retailers like Target and Macy's have plunged since the start of the year. Shares of Delta, the nation's most profitable airline, are down 35% in 2025.

New inflation data, Weinberg noted, will arrive in mid-May, a week after the U.S. Federal Reserve meets to discuss interest rates. Those discussions have become more fraught, given the upending of the global trade order.

The difficulties now facing Chair Jerome Powell and the Fed were revealed in minutes released this week from the most recent meeting of Fed principals.

The minutes from the February meeting suggest the Fed could keep its benchmark interest rate unchanged if inflation remained high, or cut rates if growth slowed and unemployment begins to rise.

But if both happened at the same time, the Fed “may face difficult tradeoffs,” some of the 19 officials on the central bank’s interest-rate setting committee said. Rising unemployment can often lead to a recession, when the Fed would normally slash its key rate to support more borrowing and spending and stimulate the economy. Yet Fed officials would likely be reluctant to cut if inflation rose, because it usually seeks to cool higher prices by keeping its key rate unchanged — or even raising it if necessary.

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AP Economics Writer Christopher Rugaber contributed to this report from Washington.