By Andrew Moran
Producer prices ran hotter than expected for the second straight month, fueled by an increase in energy costs, serving as a reminder that the inflation fight may be far from over.
In February, the producer price index (PPI), a measurement of the amount received by producers for goods, surged by 0.6 percent, up from January’s 0.3 percent increase, according to the Bureau of Labor Statistics (BLS). The consensus estimate was 0.3 percent.
Core wholesale prices, excluding volatile energy and food components, rose by 0.3 percent, less than the 0.5 percent rise in January, although slightly higher than the market forecast of 0.2 percent.
The PPI rose to a much higher-than-expected 1.6 percent year over year, while the core PPI was unchanged at 2 percent year over year.
BLS data show that roughly two-thirds of the jump in the headline PPI print came from the 1.2 percent boost in goods prices, the largest increase since August 2023. By comparison, services costs edged up by 0.3 percent.
In addition, energy played a significant role in last month’s PPI as the final demand measure spiked by 4.4 percent. At the wholesale level, gasoline prices soared by nearly 7 percent.
The biggest increases in the final demand goods indexes were seen in beef, veal, and chicken eggs, and diesel and jet fuel climbed. The final demand services indexes for airline passenger services, alcohol retailing, investment advice, loan services, and outpatient care also swelled last month.
Analysts pay close attention to the PPI because it’s thought to be a precursor to broader inflation trends, since these are costs borne early in the supply chain.
Market experts are concerned that this could be the start of a rebound in inflation.
“Not a breakout to the upside, but declining trend is leveling off,” Kathy Jones, chief fixed-income strategist at Charles Schwab, wrote on X.
According to Peter Schiff, chief economist and global strategist at Euro Pacific Asset Management, it’s further evidence that the economy is far from achieving the Federal Reserve’s 2 percent target.
“Evidence continues to mount that proves the consensus view on #inflation returning to 2 percent is wrong,” he wrote on X. “Feb. #PPI, a leading indicator of #CPI, spiked by 0.6 percent, double estimates, matching the biggest month-over-month rise since June 2022. Year over year, the increase was 1.6 percent, the biggest rise since Sept. 2023.”
The latest PPI figures come after the consumer price index (CPI) unexpectedly rose to 3.2 percent in February, higher than economists’ expectations.
‘Greedflation’
President Joe Biden has blamed the elevated inflation trends on what he calls “greedflation,” the belief that corporations are price-gouging consumers to boost profits.
“For all we’ve done to bring prices down, there are still too many corporations in America ripping people off: price gouging, junk fees, greedflation, shrinkflation,” President Biden said at a South Carolina campaign rally in January. “Americans, we’re tired of being played for suckers. And that’s why we’re going to keep these guys—keep on them and get the prices down.”
Critics say it’s inaccurate to accuse companies of ripping off shoppers because they also endure higher prices, whether in energy or labor.
For instance, the PPI has risen by 24 percent since the coronavirus pandemic. Conversely, the CPI has increased by about 19 percent.
However, many consumers agree with President Biden on this issue. A recent Navigator Research poll found that 59 percent of Americans think corporate greed is a “major cause” of inflation.
Retail Sales Data
Observers also combed through the latest retail trade figures from the Census Bureau.
Last month, retail sales advanced by 0.6 percent, up from the downwardly revised 1.1 percent decline. The reading fell short of the market forecast of 0.8 percent.
Retail data suggest that this is a “slow-growth economy for retailers,” says Ted Rossman, senior industry analyst at Bankrate.
“After falling on a month-over-month basis in three of the past four months, retail sales rebounded in February, growing 0.6 percent over January. However, the 1.5 percent year-over-year gain is minimal and less than half of the headline CPI number,” he said in a statement.
“In other words, retail sales are lagging inflation. It’s a slow-growth economy for retailers, with only e-commerce shops and bars and restaurants posting annual growth figures above the overall rate of inflation.”
Market Reaction
U.S. stocks fell on March 14 after another round of inflation data came in hotter than expected.
The U.S. Treasury market was green across the board. The benchmark 10-year yield surged above 4.25 percent, the 2-year yield was 4.69 percent, and the 30-year bond was at 4.43 percent.
The U.S. dollar index, a gauge of the greenback against a basket of currencies, rose above 103.
Recent upticks in price pressures have sparked fears that the Federal Reserve might continue to hold off on raising or cutting interest rates until officials are more confident that inflation is trending downward.
According to the CME FedWatch Tool, the futures market is pricing in a 60 percent chance of a quarter-point rate cut.
