Producer Inflation Tops Forecasts In February, Signals Anxiety Over Price Pressure Resurgence

by

Producer prices in the United States rose more than expected in February, echoing a similar trend observed the previous month and raising concerns about a potential resurgence in inflationary pressures.

The Producer Price Index (PPI) rose by 0.6% month-over-month in February, the Bureau of Labor Statistics reported Thursday. This increase represented an acceleration compared to January's 0.3% pace, and exceeded the expected 0.3%.

The producer inflation data comes on the heels of a February's consumer inflation report that also exceeded expectations earlier this week, presenting challenges to the anticipated adjustments in the Federal Reserve's interest rate policies.

February's PPI Report: Key Highlights

  • Headline PPI inflation rose by 0.6% on a monthly basis, up from 0.3% and exceeding the forecasted 0.3%.
  • On an annual basis, the headline PPI was 1.6% higher, up from the 0.9% witnessed in January and above the expected 1.1%.
  • One-third of the February advance in the index for final demand goods can be attributed to a significant 6.8-percent increase in gasoline prices.
  • The indexes for diesel fuel, chicken eggs, jet fuel, beef and veal, and tobacco products also experienced an increase. Conversely, prices for hay, hayseeds, and oilseeds decreased by 8.3 percent.
  • When excluding volatile items such as food and energy, core PPI inched 0.3% month-over-month, down from a 0.5% acceleration in January, but above the expected 0.2%.
  • Annually, the core PPI inflation stood at 2%, above the expected 1.9%.
Market Reactions

Prior to the PPI report, market-implied probabilities showed a 68% chance of a Fed rate cut in June.

Policy sensitive 2-year yields inched higher by 3 basis points to 4.66%, minutes after the report. A measure of the dollar, as tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE: UUP), rose 0.2%.

Futures on major U.S. indices trimmed gains during the premarket session. The Invesco S&P 500 Equal Weight ETF (NYSE: RSP) closed at all-time highs on Wednesday, outperforming the cap-weighted index, as tracked by the SPDR S&P 500 ETF Trust (NYSE: SPY).