Producer Prices Jump Most Since 2018 in Hint of U.S. Inflation

Prices paid to U.S. producers rose in February from a year ago by the most since October 2018, adding to evidence of mounting inflation in the production pipeline as the nation starts to emerge from the pandemic.

The producer price index for final demand advanced 2.8% from February 2020 after a 1.7% year-over-year gain in January, Labor Department figures showed Friday. The median estimate in a Bloomberg survey of economists called for a 2.7% increase. The PPI rose 0.5% from the prior month.

Excluding volatile food and energy components, the so-called core PPI increased 2.5% from a year earlier.

Producer Prices Jump Most Since 2018 in Hint of U.S. Inflation

Producers continue to find success passing along higher raw materials and transportation costs to their customers, adding fuel to the debate about whether inflationary pressures at the consumer level will become more durable.

Investors and economists are split on the inflation outlook, with some projecting price pressures will keep building amid stronger demand and government stimulus, while others forecast the build in inflation will be short-lived.

Rising producer prices have the potential of feeding through to the household costs of living. While a report Wednesday showed that the core consumer price index -- a key measure of prices paid by U.S. consumers -- rose less than expected in February, stimulus spending, income growth and a steady pace of Covid-19 vaccinations suggest inflation will mount.

The overall advance in producer prices was driven by an 1.4% month-over-month increase in the cost of goods, the Labor Department said. Energy and food prices both accelerated from a month earlier.

Final demand services costs edged up just 0.1% from January, led by higher transportation and warehousing prices that included a jump in airfares.

Prices paid for materials and components used in manufacturing climbed 2.6% in February after a 2% gain a month earlier. Those same goods used in construction increased 1.4% last month.

The costs of processed goods for intermediate demand rose 2.7% in February from a month earlier, a broad advance that was the largest since July 2008.

On recent earnings calls, a number of U.S. companies said they’ve been able to pass along rising raw materials and transportation costs as a result of pandemic-battered supply chains to their customers.

Digging Deeper

  • Producer prices excluding food, energy, and trade services -- a measure preferred by economists because it strips out the most volatile components -- rose 2.2% in February from a year earlier, the biggest gain since May 2019
  • Gasoline prices jumped 13.1% in February, accounting for about 40% of the month-over-month gain in the PPI, Labor said
  • The cost of services was restrained by weaker margins in apparel retailing

©2021 Bloomberg L.P.

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