A key inflation gauge, recorded by domestic producers, reached a new high in March as the ripple effect on energy and food prices from the war in Ukraine began to make its way to the production line.

The producer price index for final goods and services rose 11.2% from a year ago, posting double-digit growth for the third month in row. For March alone, prices for the same products shot up by 1.4%, from 0.9% in February, the Bureau of Labor Statistics reported on Wednesday.

That said, the Federal Reserve won’t likely stay off its course to raise rate by 50 basis points next month and begin to reduce its balance sheet as these price gains had been expected before the Fed signaled such a rate hike.

While we  expect energy prices to decline somewhat in the April release as oil prices have come down significantly from their peak in early March, food prices will certainly remain a problem as the war has disrupted spring crops in Ukraine, one of the world’s top exporters of wheat, corn and other agricultural commodities.

Without energy and food, core producer inflation grew 1.0% on the month, a 9.2% increase on a year-ago basis.

But the impact of the war and sanctions won’t stop with energy and food prices. What will likely become another major headwind for domestic producers are the price increases of raw materials like iron ore, steel and precious metals that go into the production of products like electronics, automobiles and machinery.

Already these price increases have caused the price indexes for intermediate materials excluding food and energy to continue to outpace prices for final goods, rising 2.1% on the month and 22.2% from a year ago. Higher input costs are eating into producers’ profit margins, effectively putting more pressure on them to raise final prices.

Such pressure also took a bite out of downstream wholesalers and retailers’ margins, whose growth slowed significantly to 1.2% on the month. Facing moderating consumption demand while costs continue to creep higher, producers and distributors are put in a difficult bind between either losing sales or profit margins.

The slowdown is an early indicator of another month of retail sales volume pullback as consumers have been forced to ration their discretionary spending due to the spikes in food and energy prices. Data on retail sales will be released on Thursday.