News: U.S. producer prices increase; underlying inflation moderate.
WASHINGTON (Reuters) – U.S. producer prices soared in February, resulting in their largest annual gain in nearly 2 1/2 years. However, a significant slump in the labor market could make it difficult for companies to pass the higher costs on to consumers.
The producer price index for final demand rose 0.5% last month, the Ministry of Labor said on Friday. This followed a 1.3% increase in January, the biggest advance since December 2009.
In the twelve months to February, the PPI rose 2.8%, the strongest since October 2018. The PPI rose 1.7% year over year in January. The increase in the PPI last month was in line with economists’ expectations.
Manufacturing and service industries have reported higher production costs as the year-long COVID-19 pandemic gets the supply chain going. Polls this month showed that prices paid by manufacturers and service companies in February were around 2008 levels.
Inflation is expected to accelerate in the coming months, surpassing the Federal Reserve’s 2% target, a flexible average, by April as declining coronavirus infections and faster vaccination pace allow for greater economic reintegration.
Part of the expected spike in inflation would be the result of price cuts early in the pandemic that wash away the calculations. Many economists, including Fed Chairman Jerome Powell, do not expect inflationary strength to continue beyond what are known as base effects.
“Aside from an increase in metrics this year due to base effects and a wider reopening of the economy that will revive demand, pricing pressures are unlikely to accelerate further in the face of an incomplete recovery in the labor market,” said Rubeela Farooqi, chief economist USA at High Frequency Economics in White Plains, New York.
US consumer sentiment rose to its highest level in a year in mid-March
At least 20.1 million Americans have unemployment benefits, which limits companies’ ability to charge higher prices.
US stocks opened lower. The dollar rose against a basket of currencies. US Treasury bond prices fell.
FOOD PRICES ARE RISING
A 6.0% increase in energy costs accounted for more than two-thirds of the broad-based increase in PPI last month. Energy prices rose 5.1% in January.
The cost of services rose 0.1% last month after rising 1.3% in January. This was the largest increase since December 2009. Commodity prices rose 1.4%, in line with January’s profit.
Excluding the volatile components of food, energy and trading services, producer prices rose by 0.2%. The so-called core PPI accelerated 1.2% in January. In the 12 months to February, the core PPI rose 2.2% after rising 2.0% in January.
The Fed tracks the Core Personal Consumption Spending (PCE) Price Index for its inflation target. The US Federal Reserve has signaled that it would tolerate higher prices after inflation continued to fall below its target. The core PCE price index is 1.5%.
The government has provided nearly $ 6 trillion in aid since the U.S. pandemic began in March 2020. President Joe Biden signed legislation on Thursday for his $ 1.9 trillion package. Coupled with the Fed’s monthly bond purchases, this has raised fears that some parts of the economy are overheating.
The government reported this week that core CPI barely rose in February after staying flat for two months, which helped ease inflation worries sparked by a surge in US Treasury bond yields.
In February, wholesale food prices rose 1.3%. Core goods prices rose 0.3% after rising 0.8% in January. These prices have risen as the dollar weakened against the currencies of the United States’ major trading partners.
The prices of final demand services minus trading, transportation and storage remained unchanged after rising 1.4% in the previous month. Health care costs fell 0.1% after rising 1.2% in January. Portfolio fees fell 1.1% after rising 9.4% in January. These healthcare and portfolio management costs are included in the PCE core price index.
Reporting by Lucia Mutikani; Editing by Alex Richardson and Andrea Ricci
Original Source © Reuters