Gasoline and food drive up U.S. producer prices in February

Gasoline trucks arrive to fill their tank trucks at a gasoline distribution terminal in San Diego, California January 7, 2015 REUTERS/Mike Blake/

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  • Producer prices increased by 0.8%; up 10% year-on-year
  • Goods explain the increase in the PPI; service apartment
  • The basic PPI gains 0.2%; grew 6.6% year-on-year

WASHINGTON, March 15 (Reuters) – U.S. producer prices rose sharply in February as the cost of commodities like gasoline jumped, and further gains are on the way after Russia’s war on the Ukraine, which made crude oil and other raw materials more expensive.

Tuesday’s Labor Department report provided more evidence that inflation will remain uncomfortably high in the months ahead, despite underlying pressures on factory gate prices which rose moderately last month.

The Federal Reserve is expected to raise interest rates on Wednesday for the first time in just over three years, with inflation well above the U.S. central bank’s 2% target. Economists predict up to seven rate hikes this year.

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“We expect the March PPI to post larger increases as commodity prices rise and global trade disruptions escalate,” said Will Compernolle, senior economist at FHN Financial in New York. York. “For consumer prices to slow, businesses will first have to deal with disruption from the Russian invasion and further shutdowns in the heart of China’s most productive regions.”

The producer price index for final demand rose 0.8% after accelerating 1.2% in January. Goods prices jumped 2.4%, the biggest increase since December 2009, after rising 1.5% in January. A 14.8% jump in wholesale gasoline prices accounted for nearly 40% of the increase in goods prices. Gasoline prices rose 3.3% in January. Food prices rose 1.9% last month.

Services remained unchanged after rising 1.0% in January.

The PPI climbed 10% in the 12 months to February, matching January’s gain. Last month’s PPI rise was in line with economists’ expectations. The data does not take into account the spike in prices for oil and other commodities, such as wheat, after Russia invaded Ukraine on Feb. 24.

Shares on Wall Street were trading higher as oil prices fell back below $100 a barrel after Russia said it favored resuming the 2015 Iran nuclear deal as soon as possible. Crude oil prices soared more than 30%, with the global benchmark Brent hitting a 14-year high of $139 a barrel, following Russia’s invasion of Ukraine.

The dollar depreciated against a basket of currencies. US Treasury prices were trading largely higher.

THE FEELING TAKES A BLOW

Rising oil prices and the Russian-Ukrainian war have weighed on the business climate in New York State. In a separate report on Tuesday, the New York Fed said its general business conditions index fell 14.9 points to -11.8 in March, the weakest reading since May 2020. A reading below of zero indicates a contraction in factory activity in the state.

Manufacturers reported a contraction in new orders and shipments, but continued to pay higher prices for inputs and charge higher prices for their finished goods.

“Geopolitical uncertainty is likely a big part of the culprit,” said Adam Kamins, economist at Moody’s Analytics in West Chester, Pennsylvania. “A lot of companies are not moving, either because their customers are doing so or to assess the economic ramifications of the invasion.”

Despite the pullback in oil prices, inflation is expected to remain high as a resurgence of COVID-19 infections in China, a major source of raw materials for U.S. factories, puts increased pressure on supply chains. Inflation was already a problem before the Russian-Ukrainian war.

The government last week signaled an acceleration in consumer prices in February, with the annual inflation rate posting its largest increase in 40 years. Read more

High inflation, mainly in the form of more expensive gasoline, prompted economists to revise downward their estimates of economic growth for this year. So far, no recession is expected as households have accumulated massive savings during the pandemic.

Excluding the volatile components of food, energy and commercial services, producer prices rose 0.2% in February, the smallest rise since November 2020. The so-called core PPI rose 0 .8% in January. It was held back last month by a 4.2% drop in portfolio management fees as investors dumped equities in favor of the dollar and US Treasuries.

There were also declines in prices for hotel and motel rooms as well as retail sales of clothing, jewelry, footwear and accessories. This offset a 1.9% increase in the cost of transportation and warehousing services. Air fares rebounded 3.0%, while health care costs rose moderately.

In the 12 months to February, the core PPI rose 6.6% after gaining 6.8% in January.

With CPI and PPI data in hand, economists estimate the core personal consumption expenditure (PCE) price index rose 0.4% in February after gaining 0.5% in January.

This would lead to a 5.5% annual increase in the PCE core price index, which rose 5.2% on an annual basis in January. It is one of the main inflation measures monitored by Fed officials.

“This is consistent with the idea that core inflation is at or above 5%,” said Andrew Hollenhorst, chief US economist at Citigroup in New York.

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Reporting by Lucia Mutikani Editing by Nick Zieminski and Paul Simao

Our standards: The Thomson Reuters Trust Principles.

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