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

Editor’s Note: This article has been updated to include new information on price changes for specific items such as diesel fuel and chicken eggs, alongside hay and hayseeds prices.

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 UUP, rose 0.2%.

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

Read now: Wall Street Eyes Strong Start Ahead Of More Inflation Data, Gold & Bitcoin Dip: Why This Analyst Looks Beyond AI For Growth

Image created using artificial intelligence with Midjourney.