Input costs for businesses declined 0.5 percent as one of the major components of consumer prices turned deflationary, the Labor Department reported Thursday.

On an annual basis, the producer price index (PPI), which measures the prices that businesses pay to each other, advanced just 2.7 percent. The Fed’s target for consumer inflation is 2 percent annual price growth.

The drop in wholesale inflation comes after the consumer price index (CPI), a key gauge of consumer inflation, fell to a 5 percent annual increase and rose just 0.1 percent in the month of March.

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The decline in costs for businesses haven’t yet translated into savings for American consumers, as companies have boosted profit margins by pushing ahead with price increases for customers.

But profit expansion is expected to decline later this year as a potential recession driven by the Federal Reserve through interest rate hikes and balance sheet contractions is now coming into view.

U.S. central bankers discussed the potential recession in March, which was catalyzed in part by the crisis set off by collapse of Silicon Valley Bank and Signature Bank, according to the minutes of the Federal Open Market Committee (FOMC)’s latest meeting.

“Given their assessment of the potential economic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year,” the minutes say. The minutes for the March meeting were released on Wednesday.

The U.S. economy is still strong by many measures. The jobless rate sank to 3.5 percent in March as the U.S. gained 236,000 jobs and more Americans entered the labor force. The economy has also defied predictions of a looming recession for nearly a year, surprising economists who previously forecasted a serious dip.

Still cruising: Five takeaways from a strong March jobs report

Even so, the Fed expects its interest rate hikes to cause the jobless rate to spike to 4.6 percent by the end of 2023. That would put about 1.7 million people out of work, according to Labor Department data and the latest summary of economic projections put out by the Fed

Fed officials said they expect the economy to resume growing in 2024 and 2025.

The lost jobs will disproportionately affect Black Americans, who are currently experiencing their lowest-ever unemployment rate During a hearing of the House Financial Services Committee in March, Powell confirmed the central bank’s projections that Black unemployment would rise this year by 2.3 percent, while White unemployment would increase by 0.9 percent — a disparity he said was “embedded” in the economy.