A key measure of inflation fell dramatically in February, according to the latest Producer Price Index, which tracks what American producers receive for their goods and services.
Producer price increases slowed to an annual pace of 4.6% last month, significantly lower than January’s downwardly revised 5.7%, the Labor Department reported on Wednesday. Prices fell 0.1% in February after rising a revised down 0.3% in January.
Economists polled by Refinitiv had expected the 12-month rise in wholesale prices to slow to 5.4%.
Excluding the often volatile food and energy components, the core PPI also posted some sharp declines: annual price increases fell to 4.4% and the index was flat from the previous month (0% growth). That’s less than January’s downwardly revised 5% annual gain and 0.1% monthly gain.
According to data from the Bureau of Labor Statistics, a 0.2% fall in final demand contributed to the decline in the PPI, which rose 1.2% in January. The final demand services index fell by 0.1%, driven by a 0.8% drop in trade and a -1.1% drop in transportation and warehousing.
Final demand groceries fell 2.2% and within this category, egg prices fell 41.3% over the month. Eggs for fresh use are now up 38.2% for the year ended February, a huge drop from a record 244% annual increase in November 2022.
The PPI is one of several closely watched indicators of inflation. Because the manufacturer-centric index captures price shifts before consumers do, it is sometimes viewed as a potential leading indicator of how prices might ultimately end up at the store level.
“Consumers have barely retreated on the spending front, so at least a small drop in service providers’ prices should reduce the momentum for passing those costs on to consumers,” wrote Stuart Hoffman, senior economic adviser at PNC Financial Services Group on Wednesday. “PNC continues to forecast a mild recession in the second half of 2023, in large part due to consumer demand hitting a wall as costs for both essentials and leisure and leisure spending have risen – the latter encompassing many service spending categories.”
Separate data released by the Commerce Department on Wednesday showed a 0.4% month-on-month decline in retail sales in February.
Consumer prices have fallen, albeit at a slower pace.
The latest consumer price index, released on Tuesday, showed that prices rose 6% in the 12 months ended February. In January, the headline CPI was 6.4%.
This week’s data will feed into Federal Reserve policy discussions and decisions next week. The Fed has been conducting a year-long monetary tightening campaign to bring down historically high inflation. However, the Fed’s approach has been complicated by the recent collapse of Silicon Valley Bank and the turmoil in the banking sector.
“The downside surprise of February’s PPI report is good news for the Fed, although yesterday’s CPI report, which shows service sector inflation is still stubborn, hardly matters in next week’s decision to raise interest rates by will play a role [a quarter point]’ said economists Matthew Martin and Ryan Sweet of Oxford Economics in a note on Wednesday.
Source : www.cnn.com