Along with the stronger consumer data in the U.S. today, the U.S. Producer Price Index also came in much hotter than expected for March, suggesting that inflation is building.

“We can’t blame it all on near-$40 crude oil prices last month. Producer prices in the U.S. exceeded expectations by a country mile, jumping 1.5% in March, the third straight month of 1%-plus gains,” notes BMO Nesbitt Burns. “Even when the volatile food & energy component is stripped out, the results are not very comforting. Core prices accelerated 0.7% in the month, lifting the year-over-year gain to 0.9%, the fastest annual increase since the end of 2001.”

The consensus expectation was for a flat reading. “Continued high prices for energy-related products lifted the headline, while higher prices for passenger cars and capital equipment contributed to the hotter-than-expected core reading,” comments CIBC World Markets.

“Moving down the production pipeline, the results are a bit disconcerting. The 12-month trends in both the core intermediate and crude components continue to climb. The core crude series, in particular, has been rising by double-digit figures for six months in a row,” says Nesbitt.

“Pressure continues to stir at the early stages of production, so fears of deflation look overblown,” Nesbitt concludes. “Rising import prices and rising pipeline prices underscore budding inflation risks as the economy heads into spring. Emerging producer price pressures are no fluke. A weak dollar is playing a key role.”