Wholesale prices in US picked up in February
Poses challenge for Fed as inflation pressures continue to be elevated
WASHINGTON – Wholesale prices in the United States accelerated again in February, the latest sign that inflation pressures in the economy remain elevated and might not cool in the coming months as fast as the Federal Reserve or the Biden administration would like.
The Labor Department said Thursday that its producer price index – which tracks inflation before it reaches consumers – rose 0.6% from January to February, up from a 0.3% rise the previous month. Measured year over year, producer prices rose by 1.6% in February, the most since last September.
The figures could present a challenge for the Fed, which meets next week and is counting on cooling inflation as it considers when to cut its benchmark interest rate, now at a 23-year high. A rate cut by the Fed could boost the economy and financial markets because it would likely ease borrowing costs over time for mortgages, auto loans and business lending.
Higher wholesale gas prices, which jumped 6.8% just from January to February, drove much of last month’s increase. Wholesale grocery costs also posted a large gain, rising 1%.
Yet even excluding the volatile food and energy categories, “core” inflation was still higher than expected in February. Core wholesale prices rose 0.3%, down from a 0.5% jump the previous month. Compared with a year ago, core prices climbed 2%, the same as the previous month. Core inflation, which tends to provide a better sign of where inflation may be headed, is watched particularly closely.
Persistently elevated inflation could become a threat to President Joe Biden’s reelection bid, which is being bedeviled by Americans’ generally gloomy view of the economy. Consumer inflation has plummeted from a peak of 9.1% in 2022 to 3.2%. Yet many Americans are exasperated that average prices remain about 20% higher than they were before the pandemic erupted four years ago.
The producer price index can provide an early read on where consumer inflation is headed. It is also closely watched because some of its data is used to compile the Fed’s preferred inflation gauge, known as the personal consumption expenditures price index.
Thursday’s producer price index report suggested that core prices in the Fed’s gauge rose 0.3% last month, according to economists at Capital Economics, and are up 2.8% compared with a year ago. The year-over-year measure, if accurate, would be unchanged from the previous month.
A separate report Thursday showed that retail sales grew 0.6% from January to February, after a sharp fall of 1.1% the previous month. The data points to cooling consumer demand.
A more cautious consumer could provide some reassurance to the Fed that the economy is cooling a bit, a trend that could potentially lower inflation over time.
Thursday’s data follows a report earlier this week on the government’s most closely watched inflation measure, the consumer price index. The CPI rose by a sharp 0.4% from January to February, a faster pace than is consistent with the Fed’s 2% inflation target. Compared with a year earlier, prices rose 3.2%, up from a 3.1% increase rise the previous month.