U.S. wholesale inflation unexpectedly accelerated in February from a month earlier, reflecting higher costs for goods and services prior to the war in Iran.
The producer price index rose 0.7% after a 0.5% gain in the prior month, according to Bureau of Labor Statistics data out Wednesday. An underlying gauge of wholesale inflation that excludes food and energy increased 0.5%.
The producer price data follow recent figures that showed underlying consumer inflation slowed in February from a month earlier. But that was before the Iran war, which has driven up energy prices and started to dent consumer sentiment.
“The large upside surprise to the PPI in February confirms that stronger inflationary pressures were already making their way through supply chains even prior to the surge in oil prices,” Thomas Ryan, North America economist at Capital Economics, said in a note.
More than half of the increase in the PPI last month was due to a 0.5% advance in services costs, according to the BLS. That includes rising costs for traveler accommodation, food wholesaling and investment services. Food prices climbed by the most since mid-2021, partly due to a nearly 49% surge in fresh and dry vegetables.
Federal Reserve officials, who are widely expected to keep interest rates unchanged at the conclusion of their two-day policy meeting later on Wednesday, now turn their attention to the supply shock. The spike in oil prices risks adding to inflationary pressures and restraining the economy.
The S&P 500 opened lower after the report as well as Iran saying US and Israeli strikes hit a key natural gas field.
Economists and investors closely track the PPI because several of its components feed into the Fed’s preferred inflation gauge, the personal consumption expendituresprice index. After incorporating the PPI data, some economists now see the core PCE price gauge rising 0.4% in February, diverging from the tamer consumer price index.
Among those categories, the cost of hospital care picked up, while prices for portfolio management continued to climb. However, physician care and home health care costs were tame.
Goods Costs
The PPI report showed wholesale goods prices jumped 1.1% after declining in the prior month. Consumer goods costs excluding food and energy rose 0.3% for a third month.
A less-volatile PPI measure that excludes food, energy and trade services rose 0.5%, the most in four months.
Costs of processed goods for intermediate demand, which reflect prices earlier in the production pipeline, climbed 1.6% — the most since August 2023.
Fed policymakers are also tracking the extent to which companies are passing along tariff-related costs. While the US Supreme Court struck down many of President Donald Trump’s tariffs last month, the president is trying to preserve his trade agenda using different provisions.
The PPI report showed trade services costs, a proxy for profit margins, rose at a more moderate 0.4% in February after surging in the prior two months.