Rate-Cut Odds Tumble As US Producer Prices Surged In February - Hottest In Over A Year
After a hotter than expected print in January, US Producer Prices were expected to continue to rise (but only modestly) in February data released today. The consensus direction was right but the scale was way off as headline PPI accelerated 0.7% MoM (vs +0.3% exp and +0.5% prior) - the biggest monthly jump since July 2025.
That lifted producer prices higher by 3.4% YoY (notably hitter than the 3.0% expected and up from the 2.9% prior). That is the hottest PPI since January 2025...
Source: Bloomberg
More than half of the February rise in prices for final demand can be attributed to a 0.5-percent advance in the index for final demand services. Prices for final demand goods increased 1.1 percent.
PPI rose 0.7% in February after rising 0.5% in January. PPI rose 3.4% for the 12 months ended in February, the largest 12-month advance since increasing 3.4% in February 2025. More than half of the February rise in prices for PPI final demand can be attributed to a 0.5-percent advance in the index for final demand services. Prices for final demand goods increased 1.1 percent.
Details:
Final demand services: The index for final demand services rose 0.5 percent in February, the third straight advance. Nearly three-fourths of the February broad-based increase can be traced to prices for final demand services less trade, transportation, and warehousing, which moved up 0.6 percent. The indexes for final demand trade services and for final demand transportation and warehousing services also rose, 0.4 percent and 0.5 percent, respectively. (Trade indexes measure changes in margins received by wholesalers and retailers.)
- Product detail: About 20% of the February advance in the index for final demand services is attributable to a 5.7-percent jump in prices for traveler accommodation services. The indexes for food and alcohol wholesaling; securities brokerage, dealing, investment advice, and related services; fuels and lubricants retailing; long-distance motor carrying; and inpatient care also rose. In contrast, margins for apparel, footwear, and accessories retailing fell 4.5 percent. The indexes for gaming receipts (partial) and for airline passenger services also decreased.
Final demand goods: Prices for final demand goods increased 1.1 percent in February, the largest rise since moving up 1.6 percent in August 2023. Forty percent of the February broad-based advance can be traced to the index for final demand foods, which jumped 2.4 percent. Prices for final demand energy and for final demand goods less foods and energy also increased, 2.3 percent and 0.3 percent, respectively.
- Product detail: Over 20% of the February rise in the index for final demand goods is attributable to a 48.9-percent jump in prices for fresh and dry vegetables. The indexes for diesel fuel, chicken eggs, gasoline, jet fuel, and tobacco products also increased. Conversely, prices for jewelry and jewelry products fell 4.0 percent. The indexes for home heating oil and for soft drinks also declined.
Core PPI (ex Food and Energy) also soared (+0.5% MoM) pushing core prices up by 3.9% YoY - the highest since Jan 2025...
Source: Bloomberg
...and if oil prices remain elevated, PPI (and CPI) are about to become a whole lot hotter...
And the pipeline for producer price inflation is higher...
Margin pressures remain as input prices rise faster than output prices...
The bottom line is that this will likely lead to a hotter than expected Core PCE print - something The Fed watches closely - and rate-cut odds are falling on the news...
...with no rate action at all priced in for today.