US Producer Prices Unexpectedly Fall, Signaling Easing Pressures

US producer prices unexpectedly declined in February after downward revisions to the prior month, pointing to an easing of cost pressures in corners of an economy still battling the highest inflation in a generation.

(Bloomberg) — US producer prices unexpectedly declined in February after downward revisions to the prior month, pointing to an easing of cost pressures in corners of an economy still battling the highest inflation in a generation.

The producer price index for final demand fell 0.1% from the prior month and increased 4.6% from a year earlier, according to data out Wednesday from the Bureau of Labor Statistics. Excluding the volatile food and energy components, the so-called core PPI was unchanged from a month earlier.

The decline in the PPI reflected decreases in both goods and services. That said, more than 80% of the retreat in merchandise can be attributed to a drop in the cost of eggs, the agency said. Services prices were restrained by machinery and vehicle wholesaling.

The data come just a day after the closely watched consumer price index showed broad-based and persistent inflation, buoyed by a strong labor market. The PPI, which is a measure of wholesale prices, has slowed significantly on a year-over-year basis amid improving supply chains and declines in many commodities.

When paired with Tuesday’s CPI and turmoil in the banking sector, the data present a tricky picture for Federal Reserve officials as they deliberate whether to extend interest-rate increases at next week’s meeting.

The median estimates in a Bloomberg survey of economists called for the overall PPI to increase 0.3% from a month earlier and for the core gauge to rise 0.4%.

A separate report Wednesday showed retail sales fell in February after a surge in the prior month, suggesting consumer spending, while holding up, is getting challenged by high inflation. Eight out 13 retail categories dropped, including sales at restaurants and bars.

Several categories from the PPI report, notably in health care, are used to calculate the personal consumption expenditures price gauge — the Fed’s preferred measure — that will be released later this month. Within health care, the cost of physician care accelerated.

Producer prices excluding food, energy, and trade services — which strips out the most volatile components of the index — increased 0.2% after a revised 0.5% gain a month earlier.

The PPI report showed food prices declined for a third month, reflecting a 36.1% slide in chicken eggs. Energy prices edged lower. Excluding the food and energy components, final demand for goods increased 0.3%.

Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, fell 0.4% on declines in food and energy. 

Separate data have pointed to a more mixed picture on the future. Manufacturers surveyed in the latest Institute for Supply Management report cited rising costs of materials, and the New York Fed’s latest measure of prices paid by factories in the state cooled but remained elevated.

–With assistance from Chris Middleton.

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