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Producer food prices inch up in March

Most categories see improvement, led by produce, suggesting retail deflation could be ending

Food input costs are rising again, an indicator that retail deflation could be approaching an end, according to figures released Wednesday by the Bureau of Labor Statistics.

The bureau’s Producer Price Index, which tracks prices on the supplier level, showed a modest 0.1% increase in consumer food during March, following a decline of 2.3% in February.

Deutsche Bank, which uses a proprietary weighted average PPI as a proxy for grocery input costs, said its index was positive for the first time in more than two years during March, continuing a positive momentum from the second half of 2016. Deutsche said consumer prices tend to correlate strongly to its index with a five-month lag period, which suggests retail deflation could flip to inflation in the late summer, Deutsche analyst Shane Higgins said.

Producer pricing could still waver, owing to a calendar shift in the Easter holiday resulting in less promotional selling this March vs. last March, analyst Bill Kirk of RBC Capital noted.

By category, proteins were -1% year-over-year in March, improving from -4% in February, while beef saw a 10% price decline, also an improvement from February’s 12.8% drop. Fresh fruit and dry vegetables in the meantime flipped to inflationary in March (+5.8%) after dramatic price drops in February and January, the Bureau said. Dairy (+4.8%) declined modestly. Eggs (-24.8%), while still deeply deflationary (-24.8%) recovered from February’s 49.2% year-over-year decrease.

The Bureau’s Consumer Price Index, which tracks inflation at the retail level, is expected to be released Friday.

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